Business Finance

1. Which of the following is a series of constant cash flows that occur at the end of each period for some fixed number of periods?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
D. None of the given options
Ordinary annuity.

2. During the accounting period, sales revenue is Rs. 25,000 and accounts receivable increases by Rs. 8,000. What will be the
amount of cash received from customers for the period?
A. Rs. 33,000
B. Rs. 25,000
C. Rs. 17,000
D. Rs. 8,000
Right Answer: 17,000
Ref: Amount of cash received = total revenue increased - account receivable increased
= 25,000 - 8000 = 17,000.
3. The conflict of interest between stockholders and management is known as:
A. Agency problem
B. Interest conflict
C. Management conflict
D. Agency cost
Agency problem.
4. Which of the following form of business organization is least regulated?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnership
D. Corporation
Sole-proprietorship.
5. Which of the following ratios are intended to address the firms financial leverage?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Asset Management Ratios
D. Profitability Ratios
Long Term Solvency Measures
These ratios are intended to address the firms long-run ability to meet its obligations, or its financial leverage..
6. Balance Sheet is based upon which of the following formula?
A. Assets = Liabilities Stockholders equity
B. Assets + Liabilities = Stockholders equity
C. Assets + Stockholders equity = Liabilities
D. Assets = Liabilities + Stockholders equity
Assets = Liabilities + Stockholders equity.
7. Quick Ratio is also known as:
A. Current Ratio

B. Acid-test Ratio
C. Cash Ratio
D. None of the given options
Acid-test Ratio.
8. Which of the following is a special case of annuity, where the stream of cash flows continues forever?
A. Ordinary Annuity
B. Special Annuity
C. Annuity Due
D. Perpetuity
Perpetuity.
9. You just won a prize, you can either receive Rs. 1000 today or Rs. 1,050 in one year. Which option do you prefer and why if you
can earn 5 percent on your money?
A. Rs. 1,000 because it has the higher future value
B. Rs. 1,000 because you receive it sooner
C. Rs. 1,050 because it is more money
D. Either because both options are of equal value
.
10. Which of the following ratios are particularly interesting to shortterm creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios
Liquidity Ratios.

SET-2
Practice This Quiz on-line and evaluate your performance
1. AST Company has a current ratio of 4:3. Current Liabilities reported by the company are Rs. 30,000. What would be the Net
Working Capital for the company?
A. Rs. 40,000
B. (Rs. 40,000)
C. Rs. 10,000
D. (Rs. 10,000)
C.
Current ratio = Current Assets / Current Liabilities
4:3 =? / 30,000
If 1/3 of 100% is 30,000 then .

2. In which form of Business, owners have limited liability.

A. sole proprietorship
B. partnership
C. joint stock company
D. none of the above
C.
Share holders of a company have the liability up to the number of shares purchased or amount invested only.

3. Which of the following item provides the important function of shielding part of income from taxes?
A. Inventory
B. Supplies
C. Machinery
D. Depreciation
D.
Depreciation expenses are deducted from net income for tax purpose..
4. The process of determining the present value of a payment or a stream of payments that is to be received in the future is known
as:
A. Discounting
B. Compounding
C. Factorization
D. None of the given options
A.
Future value is discounted back at the given interest rate to find out the current worth of the amount to be received in future..
5. You need Rs. 10,000 to buy a new television. If you have Rs. 6,000 to invest at 5 percent compounded annually, how long will you
have to wait to buy the television?
A. 8.42 years
B. 10.51 years
C. 15.75 years
D. 18.78 years
B.
Using financial calculator, Put PV =6000, Rate = 5%, FV, 10,000 and solve for Nper. 10.47 Close to the 10.51.
6. Which of the following equation is known as Cash Flow (CF)
identity?
A. CF from Assets = CF to Creditors CF to Stockholder
B. CF from Assets = CF to Stockholders CF to Creditors
C. CF to Stockholders = CF to Creditors + CF from Assets
D. CF from Assets = CF to Creditors + CF to Stockholder
D.
Its the accounting equation
Assets = Liability + Equity.
7. In which of the following type of annuity, cash flows occur at the beginning of each period?
A. Ordinary annuity
B. Annuity due
C. Perpetuity
D. None of the given options
A.
Annuity due is paid at the end of the year thats why its called annuity due..
8. Between the two identical bonds having different maturity periods, the price of the ______ bond will change less than that of
______ bond.
A. long-term; short-term
B. short-term; long-term
C. lower-coupon; higher-coupon
D. None of the given options
B.
The longer the time to maturity, all else being equal, increases duration. Higher duration = higher sensitivity to interest rate changes.
Interest rates higher = price lower..
9. Which of the given area is NOT addressed by Business Finance?
A. Financing

B. Investing
C. Managing day today expenses
D. None of the given options
D.
All of the given areas are addressed by Business Finance..
10. Which of the following form of business organization is least regulated?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnership
D. Corporation
A.
They dont have any obligation to be regulated according to business laws..
11. Which of the following is measured by profit margin?
A. Operating efficiency
B. Asset use efficiency
C. Financial policy
D. Dividend policy
A.
Profit margin ratio is calculated to determine how efficiently the business is generating cash from operations (below taxes and
interest).
12. A company having a current ratio of 1 will have ________ net working capital.
A. Positive
B. Negative
C. zero
D. None of the given options
C.
NWC = CA CL
If Current ratio = 1:1, its means assets are equal to liabilities.
So, net working capital is zero..
13. Business Finance addresses which of the following?
A. Capital budgeting
B. Capital structure
C. Working capital management
D. All of the given options
D. .
14. In which type of business, all owners share in gains and losses and all have unlimited liability for all business debts?
A. Sole-proprietorship
B. General Partnership
C. Limited Partnerhsip
D. Corporation

15. Which of the following is measured by retention ratio?

A. Operating efficiency
B. Asset use efficiency
C. Financial policy
D. Dividend policy
D.
Retention ratio determines how much amount of net income is retained for re-investment and how much is paid as dividend..
16. How many years will it take to pay off a Rs. 11,000 loan with a Rs. 1,241.08 annual payment and a 5% interest rate?

A. 6 years
B. 12 years
C. 24 years
D. 48 years
Using financial calculator in excel, Put, PV = 11,000, PMT, 1241.08, Rate = 5% and solve for Nper = 12 Years.
17. Which one of the following terms refers to the risk arises for bond owners from fluctuating interest rates?
A. Fluctuations Risk
B. Interest Rate Risk
C. Real-Time Risk
D. Inflation Risk

18. Which of the following set of ratios relates the market price of the firm's common stock to selected financial statement items?
A. Liquidity Ratios
B. Leverage Ratios
C. Profitability Ratios
D. Market Value Ratios
It determines the market price or fair value of the common stock of company and compare it with the items of balance sheet like
shareholders equity etc.
19. If a firm uses cash to purchase inventory, its quick ratio will:
A. Increase
B. Decrease
C. Remain unaffected
D. Become zero
When inventory is purchased for cash, the cash is converted into inventories and there is no effect on net current assets. The current
assets remain the same as before the purchase of inventory the current ratio will not be changed. Quick ratio, however, will be
reduced if the cash is converted into inventories because while computing quick ratio inventories are not added but cash is included
in quick assets. (Quick assets / current liab.) Quick assets = current assets-inventories.
20. Standard Corporation sold fully depreciated equipment for Rs.5,000. This transaction will be reported on the cash flow
statement as a(n):
A. Operating activity
B. Investing activity
C. Financing activity
D. None of the given options
Investing activities changes in investments and long-term assets
Cash inflows:
From sale of property, plant, and equipment.
From sale of investments in debt or equity securities of other entities.
From collection of principal on loans to other entities.
Cash outflows:
To purchase property, plant, and equipment.
To purchase investments in debt or equity securities of other entities.
To make loans to other entities..

SET-3

1. Which of the following ratios are particularly interesting to short term creditors?
A. Liquidity Ratios
B. Long-term Solvency Ratios
C. Profitability Ratios
D. Market Value Ratios
2. Financial policy is evaluated by which of the following?
A. Profit Margin
B. Total Assets Turnover
C. Debt-equity ratio
D. None of the given options
As this ratio determines how leveraged an organization is. Or how much an organization is relying on debt..
3. Mr. Y and Mr. Z are planning to share their capital to run a business. They are going to employ which of the following type of
business?
A. Sole-proprietorship
B. Partnership
C. Corporation
D. None of the given options
Having more than 2 owners of a business entity is called Partnership. Having more than seven owners of a business entity is
called corporation..
4. When the market's required rate of return for a particular bond is much less than its coupon rate, the bond is selling at:
A. Premium
B. Discount
C. Par
D. Cannot be determined without more information
If the bond's price is higher than its par value, it will sell at a premium because its interest rate is higher than current prevailing rates..
5. Which of the following statement is considered as the accountants snapshot of firms accounting value as of a particular date?
A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Retained Earning Statement
B.
6. Finance is vital for which of the following business activity (activities)?
A. Marketing Research
B. Product Pricing
C. Design of marketing and distribution channels
D. All of the given options
D.
Finance is important for all departments of an organization.
7. The most important item that can be extracted from financial statements is the actual ________ of the firm.
A. Net Working Capital
B. Cash Flow
C. Net Present Value
D. None of the given options
B.
8. A firm has paid out Rs. 150,000 as dividends from its net income of Rs. 250,000. What is the retention ratio for the firm?
A. 12%
B. 25%
C. 40%
D. 60%

C.
Retention ratio = Net income Dividend / Net income
= 250 150 / 250 = 0.4 or 40%
9. If a firms debt ratio is 45%, this means _____ of the firms assets are financed by equity financing.
A. 50%
B. 55%
C. 45%
D. Cannot be determined without more information
B.
The equity portion plus the debt portion must add up to 100%
Debt ratio = Debt / Total Assets
45% = 45 / 45 + 55
45% = 45%
10. Which of the following ratios is NOT from the set of Asset Management Ratios?
A. Inventory Turnover Ratio
B. Receivable Turnover
C. Capital Intensity Ratio
D. Return on Assets
C.
The capital intensity ratio is a financial calculation measuring how much a company is invested in total assets compared to how
much it is earning in revenue. Where as Asset turn over ratio determines how efficiently or effectively an organization is using its
assets.
11. Which of the following statement about bond ratings is TRUE?
A. Bond ratings are typically paid for by a companys bondholders.
B. Bond ratings are based solely on information acquired from sources other than the bond issuer.
C. Bond ratings represent an independent assessment of the credit-worthiness of bonds.
D. None of the given options
C.
12. If you plan to save Rs. 5,000 with a bank at an interest rate of 8%, what will be the worth of your amount after 4 years if
interest is compounded annually?
A. Rs. 5,400
B. Rs. 5,900
C. Rs. 6,600
D. Rs. 6,802
D.
FV = PV * (1+ i) ^n
= 5,000 (1+0.08) ^4
= 6802
13. Which of the following statement is TRUE regarding debt?
A. Debt is an ownership interest in the firm.
B. Unpaid debt can result in bankruptcy or financial failure.
C. Debt provides the voting rights to the bondholders.
D. Corporations payment of interest on debt is fully taxable.
B.
14. A firm reports total liabilities of Rs. 300,000 and owners equity of Rs. 500,000. What would be the total worth of the firms
assets?
A. Rs. 300,000
B. Rs. 500,000
C. Rs. 800,000
D. Rs. 1100,000

C.
Assets = Liabilities + Owners Equity
= 300,000 + 500,000
= 800,000
15. Which of the following measure reveals how much profit a company generates with the money shareholders have invested?
A. Profit Margin
B. Return on Assets
C. Return on Equity
D. Debt-Equity Ratio
C.
16. If you have Rs. 850 and you plan to save it for 4 years with an interest rate of 10%, what will be the future value of your
savings?
A. Rs. 1,000
B. Rs. 1,244
C. Rs. 1,331
D. Rs. 1,464
FV = PV * (1+ i) ^n
= 850 * (1+0.1)^4
= 1244
17. In case of international business which of the given factor(s) must be considered?
A. Role of foreign exchange
B. Balance of payments
C. Attitude of Governments
D. All of the given options

18. Which of the following refers to the difference between the sale price and cost of inventory?
A. Net loss
B. Net worth
C. Markup
D. Markdown
Mark up/margin is the extra amount charged by business to it customer to earn profit. Its the difference between sales price and
cost.
19. Who of the following make a broader use of accounting information?
A. Accountants
B. Financial Analysts
C. Auditors
D. Marketers
B.
Financial analysts make extensive use of accounting information; they are some of the most important end users. Understanding
finance helps accountants recognize what types of information are particularly valuable and, more generally, how accounting
information is actually used (and abused) in practice.
20. Rule of 72 for finding the number of periods is fairly applicable
to which of the following range of discount rates?
A. 2% to 8%
B. 4% to 25%
C. 5% to 20%
D. 10% to 50%
This rule is fairly applicable to discount rates in 5% to 20% range. Finding the Number of Periods:.

21. A portion of profits, which a company distributes among its shareholders, is known as:
A. Dividends
B. Retained Earnings
C. Capital Gain
D. None of the given options

Posted 28th November 2012 by Adnan Hamdani

Fundamentals of Auditing
For better assessing the audit risk, auditor inquires different groups in the organizations EXCEPT:
Board of governance and top level management
Legal counsel
Middle level management
Stakeholders
Internal sources of audit evidence for an entity includes the following EXCEPT:
Associated companies of the entity
Accounting systems, records and documents
Non-financial data and records
Management representation and discussion
Associated company is not internal source.
An Associated Company is an entity in which the Company has significant influence, but not a controlling interest, over the
operating and financial management policy decisions of the entity. Associated Companies are accounted for using the equity
method. Significant influence is generally presumed when the Company holds between 20 percent and 50 percent of the voting
rights.

Which of the following is the least concern to an auditor regarding the clients internal control system?
Efficiency and effectiveness of operations
Controls related to the reliability of financial reporting
Controls over classes of transactions
Auditors are equally concern with each of the given issues
Reference

During test of control procedure its design can easily tested with the help of:
ICQs and walk through tests
ICQs and judgment sample
ICQs and random sample
ICQS and ICEC
Lesson no.21 Handouts
Testing the Design:
Proper design of internal control is tested through ICQs and ICEC.

Which of the following is TRUE?

The audit profession is unregulated

The audit profession is regulated by its own professional body
Outside bodies sometimes become involved in the regulation of audit profession
The audit profession is regulated only by the government
Auditing firms do not describe themselves as auditors. They describe themselves as Chartered Accountants.In Pakistan auditing
profession is allied with the Institute of Chartered Accountants of Pakistan (ICAP). It is an autonomous body incorporated under the
Chartered Accountants Ordinance 1961.ICAP is a regulatory body that enjoys a self regulatory status. Its affairs are run by a council
which is elected by its member (Chartered Accountants).

The small audit firms provide the following services EXCEPT:

Liquidation and receivership work, fraud auditing
Financial management and system consultancy
Financial system planning and preparation
Tax management and statutory form filling
The small chartered accountant firms especially may spend more time on other services than on
auditing.
The other services may include:
a. Writing up books of accounts (Book keeping)
b. Balancing books of accounts (Extracting trial balance)
c. Preparing final accounts
d. Tax management
e. Statutory form filling
f. Financial consultancy
g. Management and system consultancy
h. Liquidation and receivership work
i. Investigations (Fraud audit)
Which of the following is not included in the category of cash?
Deposit with banks
Checks
Postdated checksMoney orders
Reference
Which of the following letter should be included in the letter of representation?
Existence of immaterial mistake in the statementExistence of any fraud or any error in the statement
Company's growth trend in the future in figures
Market value of the company's stock
Lesson No.34The contents of the letter of representation should not include routine matters, for example, that all fixed assets exist
and are the property of the company or that stock is valued at the lower of cost and net realizable value.The letter should include
only matters which:
a. are material to the financial statements, and
b. the auditors cannot obtain independent corroborative evidence.
For measuring the quality of audit evidence auditors used the tool of appropriateness; in case if auditor wants to measure quantity of
audit evidence which tools from the following should be adopted?
Relevance
Reliability
SufficiencyEffectiveness

Lesson No. 22
Sufficient appropriate Audit Evidence
Sufficiency: The measure of quantity of audit evidence.
Appropriateness: The measure of quality i.e. relevance and reliability in providing support of detecting misstatements in account
balance classes of transactions and disclosures and relevant assertions.
Which statement cannot be highlighted as a merit of audit process?
(a)It settles the dispute between management
(b)It helps the auditor to give more constructive advice top management
(c)Its help to restrict sole proprietor to by changing some fee
(d)It gives strength to the company for acquiring the finance
When the cash sales should be recorded by the companies in order to achieve control objectives?
(a)Record the cash sales when purchase order is received from the customer
(b)Record the cash sales at the point they are made
(c)Record the cash sales after some period
(d)Record the cash sales weekly
Controls over Cash Sales:
a) Cash sales should be recorded at the point the sale is made. Usually this is by means of a Cash Till or the use of cash sale
invoices or receipts.
Auditors conduct auditing in accordance with :
(a)International Financial Reporting Standards
(b)Local pronouncements/Legislations
(c)Financial Accounting Standards Board
(d)All of the given options
True and fair presentation means that the financial statement are prepared and presented in accordance with the requirements of
the applicable International Financial Reporting Standards (IFRS) and local pronouncements/legislations.
Which of the following primary assertions is satisfied when an auditor ensures that there are no unrecorded assets, liabilities,
transactions or events or undisclosed items in the client s financial records?
(a) Valuation
(b)Completeness
(c)Existence
(d)Rights and obligations
(a) Assertions about classes of transactions and events for the period under audit;
(i) Occurrence transactions and events that have been recorded have occurred and pertain to the entity;
(ii) Completeness all transactions and events that should have been recorded have been recorded;(iii) Accuracy amounts and
other data relating to recorded transactions and events have been recorded appropriately.
(iv) Cutoff transactions and events have been recorded in the proper period.
(v) Classification transactions and events have been recorded in the proper accounts.

SET-2
1. Standard format of Auditors Report as per the Companies Ordinance 1984 is described in which one
of the following Legal Forms?
A. Form31A
B. Form32A
C. Form30A

D. Form35A
Form35A.http://www.vuzs.net/
2. IFRS stands for which one of the following?
A. International Financial Reporting Standards
B. International Financial Recording Systems
C. International Financial Recording Statements
D. International Financial Reporting Systems
International Financial Reporting Standards.
3. Which of the following is NOT one of the five major components of internal control?
A. Risk assessment
B. Control activities
C. Information and communication system
D. Human resource background checks
Human resource background checks.
4. All of the following should be observed and inspected by the auditors during the risk assessment
process of an entity EXCEPT:
A. Observations of Activities and operations
B. Inspection of Documents and records
C. Reading Management reports
D. Visit to other companies in the industry
Visit to other companies in the industry.
5. Which one of the following audit techniques ordinarily provides an auditor with the least assurance
about the operating effectiveness of an internal control activity?
A. Inquiry of client personnel
B. Inspection of documents and reports
C. Observation of client personnel
D. Preparation of system flowcharts
Inspection of documents and reports.
6. Which one of the following opinions advocates that the auditor should form an opinion only after
obtaining sufficient audit evidence instead of blindly accepting any information given by the management?
A. Auditors liability
B. Professional ethics
C. Professional Skepticism
D. Auditors opinion
Professional ethics.
7. Which one of the following is NOT required as part of the audit process?
A. Substantive procedures
B. Tests of control
C. Assessment of materiality

D. Procedures to obtain an understanding of the internal control structure

Procedures to obtain an understanding of the internal control structure.
8. SECP stands for which one of the following?
A. Securities and Exchange Collaboration of Pakistan
B. Securities and Exchange Consortium of Pakistan
C. Securities and Exchange Commission of Pakistan
D. Securities and Exchange Constitution of Pakistan
Securities and Exchange Commission of Pakistan.
9. One type of analytical procedure is the Trend Analysis. Which one of the following is the best example
of trend analysis?
A. Comparison of company financial ratios to that of its competitors
B. Comparison of accounting records to budgeted amounts
C. Comparison of inventory levels over the past 3 years
D. Comparison of interest expenses to outstanding loan balances
Comparison of inventory levels over the past 3 years.
10. While conducting operational audit, which one of the following auditing procedures does the auditor
primarily rely upon?
A. Inquiry and observation
B. Analytical procedures
C. Physical inspection
D. Tracing and vouching
Analytical procedures.
11. Which one of the following helps to achieve reasonable assurance about the fairness of financial
statements during an audit process?
A. Audit report
B. Audit evidence
C. Audit engagement
D. Audit program
Audit report.

Posted 28th November 2012 by Adnan Hamdani