Accounting for Managers

ACCOUNTING FOR MANAGERS 1

 MODULE 1

Multiple choice questions

1 Goods sold to Mr. Mahesh for Rs. 10,000 is:
a. Cash Transaction b. Credit Transaction
c. Exchange Transaction d. None
2 Drawing account is :
a. Nominal Account b. Real Account c. Personal Account d. None
3 Depreciation on assets is charged on the basis of which of the following accounting
concept?
a. Money measurement concept b. Going concern concept
c. Business entity concept d. Realization concept
4 When the owner invests money in the business, it is recorded as liability of the business
to the owner. - This is indication of which accounting concept?
a. Money measurement concept b. Going concern concept
c. Separate entity concept d. Realization concept

5 If the revenue is more than the expenses, it is called profit. If the expenses are more
than revenue it is called loss. This is what exactly has been done by applying which
concept.
a. Money measurement concept b. Going concern concept
c. Matching Concept d. Realization concept
6 This concept states that revenue from any business transaction should be included in
the accounting records only when it actually happens.
a. Realisation Concept b. Accrual concept
c. Matching Concept d. Money measurement concept
7 Revenues are recognised when they become receivable. Though cash is received or not
received and the expenses are recognised when they become payable though cash is
paid or not paid. - Which accounting concept is it?
a. Realisation Concept b. Accrual concept
c. Matching Concept d. Money measurement concept
8 Same accounting principles/practices/policies/methods should be used for preparing
financial statements year after year.
a. Matching Concept b. Money measurement concept
c. Accounting Cost Concept c. Consistency Approach/ Concept
9 Creating provision for doubtful debts - this is done as per which accounting concept /
convention?
a. Consistency b. Full Disclosure c. Materiality d. Conservatism
10 Royalty Account is….
a. Nominal Account b. Real Account c. Personal Account d. None

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11 Personal Accounts are related with….
a. Assets and Liabilities b. Expenses, losses and incomes
c. Receivables and Payables d. None of these
12 Sanjay accepted to pay Sunil on behalf of us - Which is the true effect among these?
a. Sanjay is giver b. Sanjay is receiver c. Sunil is giver d. None
13 Paid salary to Vibhuti Rs.10,000. Which type of Transaction is it?
a. Cash b. Credit c. Exchange d. Non Economic
14 Bank has credited interest Rs.250. Which is appropriate effect from these?
a. Bank balance increases b. Bank balance decreases
c. Interest is an Expense d. None
15 Steve sold goods to us Rs.10,000. Which is the appropriate effect?
a. Goods go out b. Steve is receiver c. Steve is giver d. None of these
16 Placed an order with Mehta bros for supplying goods. Which type of transaction is it?
a. Cash transaction b. Credit Transaction
c. Economic Transaction d. Non Economic transaction
17 What is the type of Bad debt Account?
a. Real Account b. Nominal Account c. Personal Account d. None
18 What is the type of Bank Overdraft A/c?
a. Real Account b. Nominal Account
c. Personal Account d. None of the above
19 Paid college fees for son Rs.50,000. Which is the appropriate effect?
a. Cash comes in b. College fees is an Expense
c. Owner is giver d. Owner is Receiver
20 What is the full form os ASB?
a. Accounting Standard Board b. Accounting settlement Board
c. Aquired Standrad Board d. Aquired Standrad Board
21 GAAP stands for….
a. Genrally Accepted Accounting Principles
b. Generally Accepted Accounting Practices
c. Globally Accepted Accounting Practices
d. None of these
22 Which is the primary book of Accounts?
a. Journal b. Ledger c. Trial Balance d. Financial Statements
23 __________is consider as book of final entry.
a. Journal b. Ledger c. Trial Balance d. Financial Statements
24 The process of recording transaction in the book of journal is known as:
a. Journalising b. Posting C. Trailling d. None
25 The process of recording transaction in the book of journal to the book of Ledger is
known as:
a. Journalising b. Posting C. Trailling d. None
26 The next step in the process of accounting after preparing the book of journal is:
a. Passing Journal b. Preparing ledger c. Preparing trail balance d. None

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27 The next step in the process of accounting after preparing the book of ledger is:
a. Passing Journal b. Preparing ledger c. Preparing trail balance d. None
28 The next step in the process of accounting after preparing the trial is:
a. Passing Journal b. Preparing ledger c. Preparing trail balance d. Financial
statement
29 The total of both the side of account in the book of ledger would be:
a. Same b. Not same c. Can’t say d. None
30 The total of both the side of trail balance would be:
a. Same b. Not same c. Can’t say d. None
31 All accounts has _______
a. Two sides b. 3 sides c. 4 sides d. None
32 Which discount is not recorded in the books of account?
a. Cash Discount Allowed A/c b. Trade discount A/c
c. Cash Discount Received A/c d. Allowance A/c
33 Which discount is recorded in the books of account?
a. Cash Discount Allowed A/c b. Trade discount A/c
c. Cash Discount Received A/c d. Allowance A/c
34 Which is the main book of Accounts?
a. Journal b. Ledger c. Trial Balance d. Financial Statements
35 Which account has a debit balance?
a. Creditor b. Payables c. Bank overdraft d. Bank balance
36 Discount received is associated with which among the following?
a. Credit sales b. Cash sales c. Purchases d. Customers
37 Discount allowed is associated with which among the following?
a. Credit sales b. Cash sales c. a&b both d. None
38 Which account does not have both(Debit and Credit) balances?
a. Rent b. Discount c. Salary d. Bank
39 When the total on both the sides of trial balance do not tally, the difference should be
transferred to which account?
a. Discount A/c b. Bad debt A/c c. Mistakes A/c d. Suspense A/c
40 Salary paid to Kirtan should be credited to…
a. Salary A/c b. Kirtan A/c c. Cash A/c d. None
41 Trade discount is associated with…
a. Only Cash Transactions b. Only Credit Transactions
c. Exchange Transactions only d. Both Credit and Cash Transactions
42 When goods are distributed as free samples, which account is credited?
a. Advertisement A/c b. Purchase A/c c. Goods A/c d. None
43 When goods are distributed as a charity, which account is credited?
a. Advertisement A/c b. Purchase A/c c. Goods A/c d. None
44 When goods are lost by fire, which account is credited?
a. Advertisement A/c b. Purchase A/c c. Goods A/c d. None
45 When goods are lost by theft, which account is credited?

ACCOUNTING FOR MANAGERS 4

 a. Advertisement A/c b. Purchase A/c c. Goods A/c d. None
46 Goods sold worth of Rs. 50000. Which account is to be debited?
a. Sales b. Purchase c. Purchase return d. Cash
47 Goods sold worth of Rs. 50000. Which account is to be credited?
a. Sales b. Purchase c. Purchase return d. Cash
48 Good purchased from Ramesh Rs.15000 is _________transaction.
a. Cash b. Credit c. Can’t say d. None
49 The book of journal is also known as:
a. Book of prime entry b. Book of final entry c. Trail balance d. None
50 The goods of Rs. 500 return to Mr X. Which account is to be credited?
a. Purchase b. Purchase return c. Sales d. Cash
Questions (Answer in 300 words)
1 What is Capital expenditure? Explain with examples.
2 What is Revenue expenditure? Explain with examples.
3 Mr. Shailesh furnishes you the following details:-

4 Prepare necessary ledger accounts from above question.

5 Explain following accounting concepts:
1. Business entity 2. Dual aspect
6 What is realisation concept? Explain.
7 Journalize the following transactions in the books of Chamcham for April 2019.
Date Particulars
1 Received Rs975 from Hari in full settlement of his account for Rs1000
2 Received Rs975 from Shyam on his account for Rs1000
3 Received a first and final dividend of 60 paise in rupee from official receiver
of Mr. R who owed us Rs1000
4 Paid Rs480 to Mohan in full settlement of his account for Rs500
5 Paid Rs480 to Sohan on his account for Rs500
8 From the following ledger balances, prepare a trial balance of Kohli Traders as of 31st

ACCOUNTING FOR MANAGERS 5

 March 2020:
Account Head Rs
Capital 1,00,000
Sales 1,66,000
Purchases 1,50,000
Sales return 1,000
Discount allowed 2,000
Expenses 10,000
Trade receivables 75,000
Trade payables 25,000
Investments 15,000
Cash at bank and in hand 37,000
Interest received on investments 1,500
Insurance paid 2,500
[Ans: Total 2,92,500]
9 Classify following accounts based on traditional classification
● Capital Brought in Drawings Account
● Building purchased Purchase account
● Sales account carriage inward paid
● Carriage outward paid Cash received
● Cash paid interest received
● Interest Paid Commission Received
● Commission paid Discount allowed
● Conveyance charges Sales Promotion exp
10 Discuss the Principle based on the premise ‘Do not Anticipate Profits but provide for all
Losses’
Long questions (Answer 600 words)
1 Define accounting. Explain the process of accounting.
2 Explain the various users of accounting information.
3 Which are the Convention of Accounting? Discuss

ACCOUNTING FOR MANAGERS 6

 4 Explain various Accounting Concepts with suitable examples.
5 What are the step involved in the process of journalising? Explain.
6 Journalize the following transactions in the books of Bagha for April 2019.
Date Particulars
1 Bought goods for Rs10000
2 Purchased goods from Ram Rs 20000
3 Bought goods from Shyam for Rs 30000 against the current dated cheque
4 Purchased goods from Soham of a list price of Rs30000 at a trade discount
of 10%
5 Bought goods of the list price of Rs125000 from Mohan less 20% Trade
discount and 2% cash discount and paid 40% by Cheque.
6 Rejected and returned 10% of goods supplied by Ram
7 Rejected and returned 10% of goods supplied by Soham
7 Journalize the following transactions in the books of Chota Bhim for the April 2019.
Date Particulars
1 Sold goods for Rs10000
2 Sold goods to Sachin Rs 20000
3 Sold goods to Amit for Rs 30000 against the current dated cheque
4 Sold goods to Atul at a list price of Rs30000 at a trade discount of 10%
5 Sold goods to Sunit at a list price of Rs125000 less a 25% Trade Discount and
received the current dated cheque under a cash discount of 2%
6 Sold goods to Sahil at a list price of Rs125000 less 250% Trade Discount and
2% cash discount and paid 40% by Cheque
7 Sold goods costing Rs 40000 to Anita for cash at a profit of 25% on cost less
20% Trade discount and charged 8% sales tax and paid cartage Rs100 (not to
be charged from customers)
9 Sachin rejected and returned 10% of Goods
10 Atul rejected and returned 10% of Goods.
8 Show the classification of Accounts under the traditional and Modern approach.

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 Account Traditional Classification Modern Classification
● Building
● Purchases
● Sales
● Bank Fixed Deposit
● Rent
● Rent Outstanding
● Cash
● Adjusted Purchases
● Closing Inventory
● Investments
● Trade receivables
● Sales Tax Payable
● Discount Allowed
● Bad Debts
● Capital
9 “Accounting information is proves to be helpful to every stake holders” Explain the
statement with reference to users of accounting information.
10 State the difference between Journal and Ledger.

MODULE 2

Multiple choice questions

1 Paid the university fees for the daughter Rs.60,000; which account will be debited?
a. University fees b. Drawings c. Shop expense d. None
2 The amount of money invested by owner into its own business is known as:
a. Drawing b. Capital c. Can’t say d. None
3 Drawing account is :
a. Nominal Account b. Real Account
c. Personal Account d. None of the above

4 To know the position of the firm which among the following is prepared?
a. Trading A/c b. Profit and Loss A/c
c. Balance sheet d. Cash flow statement

ACCOUNTING FOR MANAGERS 8

 5 To know the performance of the firm which among the following is prepared?
a. Trading A/c b. Profit and Loss A/c
c. Balance sheet d. Cash flow statement
6 To know the position of cash/Bank balance with the firm which among the following is
prepared?
a. Trading A/c b. Profit and Loss A/c
c. Balance sheet d. Cash flow statement
7 ___________is prepared to know the position of cash/Bank balance with the firm.
a. Trading A/c b. Profit and Loss A/c
c. Balance sheet d. Cash flow statement
8 ___________is prepared to know the performance of the firm.
a. Trading A/c b. Profit and Loss A/c
c. Balance sheet d. Cash flow statement
9 _____________is prepared To know the position of the firm.
a. Trading A/c b. Profit and Loss A/c
c. Balance sheet d. Cash flow statement
10 The total of two sides of balance sheet is always:
a. Same b. Not same c. Can’t Say d. None
11 Income received in advance should be entered at….
a. Addition in the Income in Profit & Loss A/c
b. Liabilities side of the Balance sheet
c. Assets side of the Balance sheet
d. None
12 Which is not a part of current Assets
a. Trade receivables b. Inventories c. Current Investments d. Trade Payables
13 Which is not a part of long term Borrowings?
a. Debentures b. Cash Credit
c. Differed payment liabilities d. Term loans from bank
14 Creditors will be included in…
a. Trade receivables b. Trade payables
c. Non-current Liabilities d. Non-current Assets
15 Bills payable will be included in…
a. Trade receivables b. Trade payables
c. Non-current Liabilities d. Non-current Assets
16 Debtors will be included in…
a. Trade receivables b. Trade payables
c. Non-current Liabilities d. Non-current Assets
17 Bills receivable will be included in…
a. Trade receivables b. Trade payables
c. Non-current Liabilities d. Non-current Assets
18 Which among the following is not a part of Current Liabilities?
a. Short term borrowings b. Trade payables

ACCOUNTING FOR MANAGERS 9

 c. Short term loans and advances d. Short term provisions
19 Free samples distributed should be entered as…..
a. Subtracted from purchases b. Added in purchases
c. Subtracted from advertisement Exp. d. Written as free sample account on credit
side of Profit & Loss A/c
20 Depreciation is charged on which assets.
a. Current Assets b. Wasting Assets c. Fictitious Assets d. Fixed Assets
21 Balance Sheet is Prepared to Know the:
a. Financial Position b. Position of Assets only c. Profit and Loss d. None
22 The profit and loss account has been prepared to get:
a. Net profit/Loss b. Gross profit/loss c. Both d. None
23 The trading account has been prepared to get:
a. Net profit/Loss b. Gross profit/loss c. Both d. None
24 Balance Sheet is Prepared to Know the:
a. Financial Position b. financial performance c. Both d. None
25 The profit and loss account has been prepared for:
a. Particular year b. Particular date c. Both d. None
26 The balance sheet has been prepared for:
a. Particular year b. Particular date c. Both d. None
27 The balance sheet has debit and credit side:
a. True b. False c. Can’t say d. None
28 The profit and loss account has debit and credit side:
a. True b. False c. Can’t say d. None
29 Financing activities related to which side of balance sheet.
a. Assets side of the Balance sheet b. Liability Side of Balance sheet
c. Both Side of Balance Sheet d. None of these
30 Investing activities related to which side of balance sheet.
a. Assets side of the Balance sheet b. Liability Side of Balance sheet
c. Both Side of Balance Sheet d. None of these
31 A company issues bonds and debenture, that result:
a. Increase in cash b. Decrease in cash c. Increase in equity d. None
32 Financial Statement Includes:
a. Income Statement b. Position statement
c. Cash flow statement d. All the above
33 Example of Cash flow from Operating Activity:
a. Sales b. Dividend c. Issues of bonds d. None of these
34 Example of Cash flow from Financing Activity:
a. Sales b. Dividend c. Issues of bonds d. None of these
35 Example of Cash flow from Investing Activity:
a. Sales b. Dividend Received c. Issues of bonds d. None of these
36 The Cash flow statement is also known as:
a. Stastement of accounting for variation in cash

ACCOUNTING FOR MANAGERS 10

 b. Statement of change in financial position of cash
c. Both A & B
d. None of these
37 Which report gives a review on the profitability of a business?
a. Statement of changes in equity
b. Cash flow statement
c. Balance sheet
d. Income statement
38 When are assets subtracted from liabilities it will be equal to?
a. Capital b. Net income c. Working capital d. Goodwill
39 Current assets are also known as:
a. Cash b. Assets c. Invested capital d. Working capital
40 The main operation expenses of a business are termed as:
a. Operating expenses
b. non-administration expense
c. Selling expenses.
d. Administration expense
41 Cash receipt received from the sales fixed assets are recorded under the head of:
a. Other activities
b. Investing activities
c. Financing activities
d. Operating activities
42 A current asset that can be transferred into cash within three months is known as:
a. Cash equivalent b. Intangible asset
c. Operating asset d. Cash asset
43 Which statement shows the flow of cash and cash equivalents during the financial
period?
a. Statement of changes in equity
b. Cash flow statement
c. Balance sheet
d. Income statement
44 What does a balance sheet indicate out of the following options
a. The demographic details of the employees
b. The overall organization’s liabilities, assets as well as stockholders’ equity
c. The report regarding the weekly work progress of the organization
d. None of the above
45 Which of the following is not a part of the financial reports of the organization
a. Balance sheet
b. Income statements
c. Report with the vision and mission of the organization

ACCOUNTING FOR MANAGERS 11

 d. Report regarding the flow of cash
46 Which of the following can be a part of financial reports?
a. The report regarding the financial result of the organization
b. The report with details about the financial position of the organization
c. The report regarding the flow of cash of the organization
d. All of the above
47 Which of the following is the most suitable statement for explaining the statement of
cash flows
a. Report regarding the assets, equity and liabilities
b. Report explaining the purpose of business
c. Report regarding the changes in the flow of cash for a particular time
d. Report regarding the working and functioning of the organization
48 Which of the following can be a part of liabilities in the balance sheet
a. Debts b. Dividends payable
c. Wages that are payable d. All of the above
49 A company issues bonds and debenture, that result
a. Increase in cash b. Decrease in cash c. Increase in equity d. None
50 Interest received on investment is a part of:
a. Other activities
b. Investing activities
c. Financing activities
d. Operating activities
Questions (Answer in 300 words)
1 The income statement of X Ltd for the year ended was as follows:
Net sales 4032000
Cost of sales (3168000)
Depreciation (96000)
Salaries and Wages (384000)
Opex (128000)
Provision for taxation (140800)
Net Operating Profit 115200
Compute Net profit before working capital changes. [Ans: 352000]
2 The cash flow statement of DD Ltd shows the following positions:
Cash inflow from operating activities 406000

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 Cash outflow from investing activities 318000
Cash outflow from financing activities 18000
Cash and cash equivalents at the end 135000
Cash and cash equivalents at the beginning?
[Ans:65000]
3 Accounts of X Ltd show that the balance of cash and cash equivalents has increased by
Rs19200 as compared to last year. If the cash flow statement reveals net cash inflow
from financing activities is Rs19200 and cash outflow from investing activities Rs.
480000. Compute cash from operating activities. [Ans: 480000]
4 What are fixed assets? Explain.
5 What are current assets? Explain.
6 X Ltd provides the following information:
Net Income 100000
Account receivables increased 9000
Prepaid insurance decreased 3000
Depreciation 15000
Gain on sale of land 2000
Wages payable decreased 7000
Outstanding expenses increased 11000
Compute cash flow from operating activities. [Ans: 111000]
7 Extracts o cash flow statement prepared by X Ltd are as follows:
Cash generated from operation 541000
Income tax Paid 180000
Sale of fixed assets 50000
Voluntary separation payment paid 80000
Law compensation suit received 125000
Compute cash flow from operating activities. [Ans:406000]
8 From the following details compute cash generated from operations. (Rs in lacs)
Net profit before WC changes 3051

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 Net increase in Current assets 3205
Net increase in Current liabilities 9
[Ans: -145]
9 What is Operating Expense? Discuss.
10 List out Operating Incomes and Non-Operating Incomes.
Long questions (Answer 600 words)
1 Prepare format of balance sheet under Schedule -III of companies act, 2013.
2 Prepare format of Profit and Loss under Schedule -III of companies act, 2013.
3 Give the Vertical format of Balance sheet for the company.
4 Give the Vertical format of Income statement for the company.
5 What is an annual report? And What types of information are given in it?
6 Classify the following cash transactions into i) Cash from Operating Activity; ii) Cash
from Investing Activity; iii) Cash from Financing Activity: -
1) Dividend paid to shareholders
2) Payment made to supplier
3) Interest income on Debenture
4) Dividend Received
5) Taxes Paid
6) Salary Paid
7) Purchase of Shares
8) Issue of Shares
7 “As an expert in accounting, analyse the financial of statement of public limited
company and explain the types of financial statements which are typically included in
the annual report”.
8 Compare and contras Standalone Financial Statement and Consolidated Financial
Statements.
9 How to arrive at COCGS? Discuss with hypothetical example.
10 Prepare a cash flow statement from the following information.

Cash and cash equivalents (1.4.2021) 90000

Redemption of preference shares 200000

Plant and machinery purchased 350000

Income tax paid 100000

Increase in current assets 45000

Increase in current liabilities 15000

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 Net profit before WC changes 353000

Voluntary separation payments 110000

Land and building sold 150000

Proposed dividend paid 60000

10% Debenture issued 100000

Interest on debenture paid 18000

Plant and machinery sold 90000

Investment sold 50000

Issues of share capital 100000

[Ans: 65000]

ACCOUNTING FOR MANAGERS 15

 MODULE 3

Multiple choice questions

1 Ratio analysis is useful to
a. Investors b. Creditors c. Employee d. All the above
2 Proprietary ratio can be calculated from
a. Income Statement b. Balance Sheet c. Both A & B d. None of these
3 Working capital turnover ratio can be derived from
a. Income Statement b. Balance Sheet c. Both A & B d. None of these
4 The rule of thumb for current ratio is
a. 2:1 b. 1:2 c. 1:1 d. None
5 Which of the following ratio, when low, is favourable
a. Stock Turnover b. Operating Profit c. Operating Cost d. Creditor Turnover
6 Net worth implies
a. Equity Share Capital b. Total Assets
c. Total Assets - Total Liability d. Total Assets - Current Liability
7 Profitability ratios are calculated with reference to
a. Investment b. Net Sales c. Both A & B d. None of these
8 Proprietary ratio measures
a. Solvency b. Liquidity c. Profitability d. Turnover Ratio
9 Which ratio is useful in calculating average collection period
a. Debtor Turnover Ratio b. Creditor Turnover Ratio
c. Stock Turnover Ratio d. None
10 Taking the current ratio 2.5:1 , if a part of current liabilities is paid, the existing ratio
would be.
a. Improve b. Decline c. No change d. None
11 Which of the following is a limitation of ratio analysis?
a. Helps in Comparison b. Future Barometer c. Only Quantitative d. None
12 While computing quick ratio which of the following is excluded
a. Debtors b. Stock c. Both A & B d. None
13 In comparative statement analysis, what does a horizontal analysis primarily focus on?
a. Comparing financial ratios across different industries.
b. Analysing financial data over multiple periods.
c. Assessing the relationship between income and expenses.
d. Evaluating a company's liquidity position.
14 When conducting vertical analysis, what is the base for expressing each line item on
the income statement or balance sheet? When conducting vertical analysis, what is the
base for expressing each line item on the income statement or balance sheet?
a. Total assets b. Total liabilities c. Net income d. Net sales or revenues
15 Which financial statement would primarily be used to identify changes in a company's

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 cash position over a period?
a. Balance sheet b. Income statement
c. Statement of retained earnings d. Cash flow statement
16 In comparative statement analysis, what is the primary objective of a vertical analysis?
a. To compare a company's financial performance with its competitors.
b. To assess changes in financial statement line items as a percentage of a base
amount.
c. To examine the relationship between various financial ratios.
d. To forecast future financial trends of a company.
17 Which financial statement reflects the profitability of a company over a specific period?
a. Balance sheet b. Income statement
c. Cash flow statement d. Statement of changes in equity
18 When conducting a horizontal analysis of the income statement, what does an increase
in the cost of goods sold as a percentage of sales generally indicate?
a. Improved profitability
b. Decreased efficiency in production
c. Reduced selling and administrative expenses
d. Increased gross margin
19 Which statement is correct regarding a comparative balance sheet?
a. It displays financial data for a single period only
b. It compares a company's financial position over multiple periods
c. It primarily focuses on a company's cash flows
d. It presents the income and expenses of a company for a fiscal year
20 A decrease in accounts receivable turnover from the previous year suggests:
a. Improved efficiency in collecting payments from customers
b. Slower collection of receivables from customers
c. Reduced credit sales
d. Increased liquidity
21 What is the formula for calculating Return on Assets (ROA)?
a. Net Income / Total Liabilities
b. Net Income / Total Assets
c. Net Income / Total Equity
d. None
22 What does the income statement primarily show?
a. Cash flow of a company
b. Revenues, expenses, and net income over a period
c. Changes in equity over a period
d. Assets, liabilities, and equity at a specific point in time
23 An increase in inventory turnover typically suggests:
a. Faster sales of inventory b. Slower sales of inventory
c. Efficient management of inventory d. Decreased cost of goods sold
24 Which financial statement reflects the equation: Assets = Liabilities + Equity?

ACCOUNTING FOR MANAGERS 17

 a. Income statement b. Statement of cash flows
c. Balance sheet d. Statement of retained earnings
25 A decrease in the Current Ratio typically signifies:
a. Improved liquidity b. Reduced liquidity
c. Reduced liquidity d. Decreased reliance on current assets
26 The formula for calculating the Debt-to-Equity ratio is:
a. Total Debt / Total Equity b. Total Assets / Total Equity
c. Total Debt / Total Assets d. Total Equity / Total Assets
27 Which ratio measures a company's ability to meet its short-term obligations using its
most liquid assets?
a. Quick ratio b. Debt-to-Equity ratio
c. Inventory turnover ratio c. Current ratio
28 An increase in the quick ratio suggests:
a. Improved liquidity b. Reduced liquidity
c. Increased reliance on inventory d. Decreased reliance on current assets
29 An increase in the quick ratio suggests:
a. Improved liquidity b. Reduced liquidity
c. Increased reliance on inventory d. Decreased reliance on current assets
30 The formula for calculating the Gross Profit Margin is:
a. Gross Profit / Net Sales b. Gross Profit / Cost of Goods Sold
c. Net Income / Net Sales d. Operating Income / Net Sales
31 Which financial ratio measures a company's ability to cover its interest expenses with
its earnings?
a. Times Interest Earned ratio
b. Debt-to-Equity ratio
c. Return on Assets (ROA) ratio
d. Current ratio
32 A higher Return on Equity (ROE) signifies:
a. Lower profitability
b. Lower efficiency in asset utilization
c. Higher profitability relative to shareholders' equity
d. Decreased financial leverage
33 Which financial statement shows the changes in equity resulting from dividends, stock
issuances, and net income over a period?
a. Income statement b. Balance sheet
c. Statement of cash flows d. Statement of retained earnings
34 The formula for calculating the Accounts Receivable Turnover ratio is:
a. Sales / Average Accounts Receivable
b. Cost of Goods Sold / Average Accounts Receivable
c. Net Income / Average Accounts Receivable
d. Accounts Receivable / Net Sales
35 An increase in the debt ratio implies:

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 a. Reduced financial risk b. Increased use of equity financing
c. Increased use of debt financing d. Improved liquidity
36 Which financial statement reports a company's cash inflows and outflows categorized
into operating, investing, and financing activities?
a. Income statement b. Balance sheet
c. Statement of cash flows d. Statement of retained earnings
37 Which ratio measures a company's overall financial leverage?
a. Current ratio b. Debt-to-Equity ratio c. Quick ratio d. Asset Turnover ratio
38 An increase in a company's gross profit margin suggests:
a. Increased profitability on sales b. Increased cost of goods sold
c. Decreased operating expenses d. Reduced sales revenue
39 Which financial ratio measures a company's ability to turn its inventory into sales?
a. Inventory turnover ratio b. Accounts Receivable Turnover ratio
c. Quick ratio d. Debt-to-Equity ratio
40 What does the term "net working capital" represent?
a. Current assets minus current liabilities
b. Total assets minus total liabilities
c. Total equity minus total debt
d. Net income minus dividends
41 An increase in days sales outstanding (DSO) suggests:
a. Faster collection of receivables
b. More efficient management of accounts receivable
c. Slower collection of payments from customers
d. Improved liquidity
42 The formula for calculating the Quick Ratio is:
a. (Current Assets - Inventory) / Current Liabilities
b. Current Assets / Current Liabilities
c. (Current Assets + Inventory) / Current Liabilities
d. Current Assets / Total Assets
43 Operating cash flow is calculated by adding back which of the following to net income?
a. Depreciation and Amortization
b. Interest expense
c. Cost of goods sold
d. Taxes
44 The formula for calculating the Current Ratio is:
a. Current Assets / Current Liabilities
b. Total Assets / Total Liabilities
c. Current Assets / Total Assets
d. Current Liabilities / Total Liabilities
45 If a company's net income increases and its total assets remain the same, what

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 would happen to the Return on Assets (ROA)?
a. ROA increases b. ROA decreases
c. ROA remains unchanged d. ROA cannot be determined
46 The formula for calculating Earnings Per Share (EPS) is:
a. Net Income / Total Equity
b. Net Income / Total Assets
c. Net Income / Weighted Average Number of Shares Outstanding
d. Total Assets / Total Equity
47 Which financial statement shows the changes in equity during a specific period?
a. Income statement b. Statement of cash flows
c. Balance sheet d. Statement of retained earnings
48 Which financial ratio measures a company's ability to cover interest expenses
with its earnings?
a. Debt ratio b. Times Interest Earned ratio
c. Return on Assets ratio d. Inventory turnover ratio
49 Which of the following is not a category in the cash flow statement?
a. Operating activities b. Investing activities
c. Financing activities d. Equity activities
50 The DuPont analysis breaks down Return on Equity (ROE) into which
components?
a. Profit margin, asset turnover, and financial leverage
b. Revenue, cost of goods sold, and operating expenses
c. Equity, debt, and assets
d. Liquidity, solvency, and profitability
Questions (Answer in 300 words)
1 What is liquidity ratio? Explain any liquidity ratio with formula.
2 Explain Debt-Equity ratio with help of hypothetical example.
3 What is Ratio analysis? Explain the importance of ratio analysis.
4 What are the advantages of Ratio analysis? Discuss.
5 Explain net profit ratio and gross profit ratio.
6 Write a short note on Debtors turnover ratio.
7 From the following Profit and Loss account prepare a Common Size Income
Statement.

ACCOUNTING FOR MANAGERS 20

 8 From the given data, calculate trend a percentage taking 2013 as base:

9 From the following data, calculate trend percentages.

10 Explain any three-activity ratios with formula.

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 Long questions (Answer 600 words)
1 The following details are provided by C ltd. For the year ended 31st March, 2015
and 2016 prepare Comparative Statement:

2 The balance sheet of S Ltd are given for the year 2014 and 2015 convert them into
common size balance sheet and interpret the changes.

ACCOUNTING FOR MANAGERS 22

 3 From the income statement give below you are required to prepare common – sized
income statement.

4 You given the following common size percentage of AB Company Ltd for 1997 and
1988.

ACCOUNTING FOR MANAGERS 23

 From the above information, compute the missing common size percentage. Also
calculate the value of all assets and liabilities.
5 Following is the Balance sheet of Star Ltd. as on 31st March, 2016. You are required
to rearrange it in a common size form.

6 From the following details, compute Cash From Operating Activities by Direct Method:-
Cash Sales Rs. 100000
Cash Purchase Rs. 50000
Sale of Machinery Rs. 90000

ACCOUNTING FOR MANAGERS 24

 Factory Rent paid Rs. 10000
Dividend Received Rs. 6000
Salary paid Rs. 8000
Taxes paid Rs. 4000
7 What is Financial Statement Analyses? How it is helpful to the management?

8 Discuss the meaning, nature and limitations of Financial Statement.

9 The following are the Balance sheets of Harsha Ltd. as on 31st Dec,2004 and 2005.

Prepare a common- size balance sheet and interpret the same.

10 What do you understand by Trend Analysis? Explain in brief with hypothetical example.

ACCOUNTING FOR MANAGERS 25

 MODULE 4

Multiple choice questions

1 What does the term "EBITDA" stand for in financial analysis?
a. Earnings Before Interest, Tax, Depreciation, and Amortization
b. Earnings Before Income and Taxes, Depreciation, and Amortization
c. Earnings Beyond Income, Tax, Depreciation, and Amortization
d. Earnings Before Interest, Taxes, and Amortization
2 What does EBIT stand for in financial analysis?
a. Earnings Before Interest and Taxes
b. Earnings Before Income and Taxes
c. Earnings Beyond Interest and Taxes
d. Earnings Beyond Income and Taxes
3 Earnings Before Interest and Taxes (EBIT) is also known as:
a. Gross Profit b. Operating Profit
c. Net Profit d. Earnings After Taxes
4 What is the formula to calculate Earnings Per Share (EPS)?
a. Net Income / Total Equity
b. Net Income / Total Assets
c. Net Income / Weighted Average Number of Shares Outstanding
d. Total Assets / Total Equity
5 Which statement is true regarding EBITDA?
a. It includes amortization expenses but excludes depreciation.
b. It includes taxes but excludes interest expenses.
c. It adds back non-cash expenses like depreciation and amortization to net income.
d. It represents net income before any financial charges.
6 EBITDA is a measure used primarily to assess a company's:
a. Profitability before taxes
b. Operating performance without considering interest, taxes, depreciation, and
amortization
c. Net profit after tax and interest
d. Total revenue without considering operating expenses
7 In DuPont analysis, what does the asset turnover ratio measure?

ACCOUNTING FOR MANAGERS 26

 a. The company's ability to generate profits from its assets
b. The ratio of total assets to total liabilities
c. The company's ability to pay off its short-term liabilities
d. The efficiency of asset management
8 Which ratio is not a component of the DuPont analysis?
a. Asset turnover ratio b. Profit margin ratio
c. Current ratio d. Equity multiplier ratio
9 How is EPS calculated?
a. Net income / Total equity
b. Net income / Total assets
c. Net income / Weighted average number of shares outstanding.
d. Total assets / Total equity
10 EBIT represents a company's earnings before:
a. Interest and taxes b. Taxes and dividends
c. Depreciation and taxes d. Interest and dividends
11 If a company's net income is Rs.500,000 and it has 100,000 outstanding shares, what is
the EPS?
a. Rs. 50 b. Rs. 500 c. Rs.5 d. Rs.0.5
12 EBITDA excludes which of the following from the financial calculations?
a. Taxes b. Interest c. Depreciation d. Net Income
13 A higher EPS indicates:
a. Lower profitability b. Lower shareholder value
c. Higher profitability per share d. Decreased earnings potential
14 If a company's net income increases and the number of outstanding shares remains the
same, what happens to EPS?
a. EPS increases b. EPS decreases
c. EPS remains unchanged d. EPS cannot be determined
15 Funds used for the redemption of common shares would be categorized as a(n) _____in
the fund flow statement.
a. Source of funds b. Use of funds c. Operating activity d. Financing activity
16 The fund flow statement primarily deals with the movement of:
a. Cash only b. Cash and bank balances
c. Funds in various assets and liabilities d. Current assets and current liabilities
17 What is the primary objective of preparing a fund flow statement?
a. To analyze changes in cash and cash equivalents
b. To assess changes in the company's net income
c. To provide details of cash inflows and outflows
d. To explain the sources and uses of funds over a period
18 In a fund flow statement, funds refer to:
a. Cash and bank balances only b. Cash and near-cash items
c. Capital and profits d. Total assets and liabilities
19 The fund flow statement emphasizes changes in:

ACCOUNTING FOR MANAGERS 27

 a. Cash balances b. Long-term investments
c. Current assets and liabilities d. Property, plant, and equipment
20 The fund flow statement primarily focuses on:
a. Revenue and expenses b. Assets and liabilities
c. Financing and investing activities d. Cash flows from operating activities
21 Which section of the fund flow statement deals with sources and uses of funds?
a. Investing activities b. Operating activities
c. Financing activities d. Cash flow from operations
22 A positive figure in the fund flow statement indicates:
a. More cash outflows than inflows
b. An increase in working capital
c. A decrease in retained earnings
d. Greater investments in long-term assets
23 What does the term "fund" refer to in the context of a fund flow statement?
a. Cash only b. Cash and cash equivalents
c. Both cash and non-cash assets d. Long-term investments
24 The fund flow statement helps in analyzing changes in a company's:
a. Revenue b. Profitability c.Liquidity and financial structure d. Gross margin
25 In a fund flow statement, an increase in long-term debt indicates:
a. Positive cash flow b. Negative cash flow
c. Positive fund flow d. Negative fund flow
26 What does a positive change in working capital signify in the fund flow statement? a.
Increase in cash b. Decrease in cash
c. Stable cash position d. No impact on cash
27 Which of the following is a non-current liability?
a. Accounts Payable b. Long-term loans
c. Prepaid expenses d. Accrued liabilities
28 In a Fund Flow Statement, the opening balance of working capital is equal to the:
a. Closing balance of the previous period
b. Net profit of the current period
c. Opening balance of the previous period
d. Cash and cash equivalents
29 Dividends paid to shareholders are classified as:
a. Sources of funds b. Uses of funds
c. Changes in working capital d. Non-operating activities
30 If there is a decrease in current liabilities in a Fund Flow Statement, it is considered a: a.
Source of funds b. Application of funds c. Neutral factor d. Both a and b
31 An increase in trade payables is reflected as a:
a. Source of funds b. Use of funds
c. Neutral factor d. Non-operating activity
32 A decrease in the value of inventories is considered a:
a. Source of funds b. Use of funds

ACCOUNTING FOR MANAGERS 28

 c. Neutral factor d. Non-operating activity
33 The difference between the total sources and total uses of funds in a Fund Flow
Statement is equal to:
a. Net profit b. Net working capital
c. Net increase in cash d. Net change in funds
34 If there is a decrease in long-term investments, it is considered a:
a. Source of funds b. Use of funds
c. Neutral factor d. Non-operating activity
35 An increase in prepaid expenses is considered a:
a. Source of funds b. Use of funds
c. Neutral factor d. Non-operating activity
36 The Fund Flow Statement is helpful in analysing:
a. Profitability b. Liquidity c. Solvency d. All of the above
37 The Fund Flow Statement is useful for:
a. Short-term analysis b. Long-term analysis
c. Both short-term and long-term analysis d. None of the above
38 A decrease in accounts payable is considered a cash flow from:
a. Operating activities b. Investing activities
c. Financing activities d. Non-operating activities
39 The Cash Flow Statement is considered a more reliable indicator of a company's financial
health compared to the:
a. Income Statement b. Balance Sheet
c. Statement of Changes in Equity d. Notes to the Financial Statements
40 Cash flow from financing activities does not include:
a. Issuance of bonds b. Repayment of loans
c. Payment of dividends d. Purchase of fixed assets
41 The indirect method of preparing a Cash Flow Statement involves adjusting net income
for:
a. Changes in working capital b. Cash flows from investing activities
c. Both a and b d. Neither a nor b
42 Cash flow from investing activities includes:
a. Payment of dividends b. Purchase of fixed assets
c. Receipt of interest d. Issuance of shares
43 What does a negative cash flow from operating activities indicate?
a. Efficient cash management b. Inefficient cash management
c. Increase in working capital d. No impact on cash flow
44 The Cash Flow Statement is categorized into three main sections, namely:
a. Operating, financing, and investing activities
b. Profit, loss, and income activities
c. Cash, credit, and assets activities
d. Liquid, fixed, and current activities

ACCOUNTING FOR MANAGERS 29

 45 What is the significance of the Cash Flow Statement for investors?
a. It helps in evaluating the company's profitability
b. It provides information about changes in cash and cash equivalents
c. It assesses the company's long-term debt
d. It determines the company's market share
46 Cash flow from operating activities is calculated by adjusting net income for changes in:
a. Working capital b. Long-term investments
c. Financing activities d. Both b and c
47 What is the relationship between the Cash Flow Statement and the Income Statement?
a. They are identical.
b. The Cash Flow Statement explains changes in cash from the Income Statement
c. The Cash Flow Statement is a substitute for the Income Statement
d. They are unrelated
48 The Cash Flow Statement helps in assessing the company's:
a. Profitability b. Liquidity c. Solvency d. Both a and b
49 Cash equivalents do not include:
a. Treasury bills b. Short-term bank deposits
c. Money market funds d. Long-term government bonds
50 What is the impact of depreciation on cash flow from operating activities?
a. Increases cash flow b. Decreases cash flow
c. No impact on cash flow d. Converts non-cash expenses into cash
Questions (Answer in 300 words)
1 What is Fund flow statement? Explain.
2 Explain the benefits of fund flow statement.
3 What is process of preparation of Fund flow statement?
4 Give five examples of applications of fund.
5 Give five examples of sources of fund.
6 Why fund flow statement has been prepared? Explain its importance.
7 What is Horizontal Analysis?
8 What is Vertical Analysis?
9 How to arrive at COCGS?
10 Explain the various aspects of changes in working capital.
Long questions (Answer 600 words)
1 Following are the details of Rajashree Limited:-

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 From the above data, compute:-
1) Current Ratio
2) Acid Test Ratio
3) Net Profit Ratio
4) Debt-Equity Ratio
Comment on the financial position of the company based on above ratios.
2 How would you interpret the following ratios? Consider each case to be independent of
each
other while answering:-
i) Debt- Equity Ratio – 4:1
ii) Current Ratio – 3:1
iii) Quick Ratio – 0.80:1
iv) PE Ratio – 20
3 What do you mean by Financial Statement Analysis? Explain various techniques of
Financial Statement Analysis in detail.
4 Prepare a Cash Flow Statement on the Basis of the following information given in the
Balance Sheet of PS Ltd as PER AS-3.

5 The following is the balance sheet of Jaya co. ltd. As on 31 dec.2010 & 2011.
Balance sheet

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 Liabilities 2010 2011 Assets 2010 2011

Share Capital 100000 120000 Goodwill 15000 13000

Profit/loss a/c 25000 45000 Building 50000 45000

Debenture 50000 75000 Machinery 100000 120000

creditors 10000 15000 Furniture 1000 2000

Bills Payable 1000 2000 Investment …….. 60000

Provision for Dep. On Debtors 13000 12000

Building 5000 7000 Stock 12000 11000

Machinery 3000 4000 Cash 2000 4500

Preliminary Exp. 1000 500

194000 268000 194000 268000

Additional information
• A Part of building of the original cost of Rs 5000on which accumulateddepreciation
was Rs 500 was sold during the year 2011 for Rs. 6000
• One Machine costing Rs 10000 on which accumulated depreciation Rs. 300 was
sold during the year for Rs. 8000 in 2011.
• An Interim Dividend Paid during the year 2011 was Rs. 15000. you are required to
prepare a Fund flow Statement.
You are required to prepare a Fund flow Statement.
6 Draw the specimen of fund flow statement.
7 What are the limitations of ratio analysis? Explain.

8 X Co. has made plans for the next year. It is estimated that the company will employ total
assets of Rs. 8,00,000; 50 per cent of the assets being financed by borrowed capital at an
interest cost of 8 per cent per year. The direct costs for the year are estimated at Rs.
4,80,000 and all other operating expenses are estimated at Rs. 80,000. The goods will be
sold to customers at 150 per cent of the direct costs. Tax rate is assumed to be 50 per
cent.
You are required to CALCULATE: (i) Operating profit margin (before tax); (ii) net profit

ACCOUNTING FOR MANAGERS 32

 margin (after tax); (iii) return on assets (on operating profit after tax); (iv) asset turnover
and (v) return on owners’ equity.
9 Write a detail note on types of ratio analysis from user’s perspective.
10 1. The total sales (all credit) of a firm are Rs. 6,40,000. It has a gross profit margin of 15
per cent and a current ratio of 2.5. The firm’s current liabilities are Rs. 96,000; inventories
Rs. 48,000 and cash Rs. 16,000.
(a) DETERMINE the average inventory to be carried by the firm, if an inventory turnover of
5 times is expected? (Assume 360 days a year).
(b) DETERMINE the average collection period if the opening balance of debtors is intended
to be of ` 80,000? (Assume 360 days a year).

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