Working Capital Management Objectives Set 2

14/08/2020 1 By indiafreenotes
  1. Concentration Banking helps in
  • Reducing Idle Bank Balance
  • Increasing Collection
  • Increasing Creditors
  • Reducing Bank Transactions.


  1. The Transaction Motive for holding cash is for
  • Safety Cushion
  • Daily Operations
  • Purchase of Assets
  • Payment of Dividends


  1. Miller-Orr Model deals with
  • Optimum Cash Balance
  • Optimum Finished goods
  • Optimum Receivables
  • All of the above


  1. Float management is related to
  • Cash Management
  • Inventory Management
  • Receivables Management
  • Raw Materials Management


  1. Which of the following is not an objective of cash management?
  • Maximization of cash balance
  • Minimization of cash balance
  • Optimization of cash balance,
  • Zero cash balance.


  1. Which of the following is not true of cash budget?
  • Cash budget indicates timings of short-term borrowing
  • Cash budget is based on accrual concept
  • Cash budget is based on cash flow concept
  • Repayment of principal amount of law is shown in cash budget


  1. Baumol’s Model of Cash Management attempts to:
  • Minimise the holding cost,
  • Minimization of transaction cost,
  • Minimization of total cost,
  • Minimization of cash balance


  1. Which of the following is not considered by Miller-Orr Model?
  • Variability in cash requirement
  • Cost of transaction,
  • Holding cost,
  • Total annual requirement of cash.


84. Marketable securities are primarily

  • Equity shares
  • Preference shares
  • Fixed deposits with companies
  • Short-term debt investments.


  1. 5Cs of the credit does not include
  • Collateral
  • Character
  • Conditions
  • None of the above


  1. Which of the following is not an element of credit policy?
  • Credit Terms
  • Collection Policy
  • Cash Discount Terms
  • Sales Price.


  1. Ageing schedule incorporates the relationship between
  • Creditors and Days Outstanding
  • Debtors and Days Outstanding
  • Average Age of Directors
  • Average Age of All Employees


  1. Bad debt cost is not borne by factor in case of
  • Pure Factoring
  • Without Recourse Factoring
  • With Recourse Factoring
  • None of the above


  1. Which of the following is not a technique of receivables Management?
  • Funds Flow Analysis
  • Ageing Schedule
  • Days sales outstanding
  • Collection Matrix


  1. Which of the following is not a part of credit policy?
  • Collection Effort
  • Cash Discount
  • Credit Standard
  • Paying Practices of debtors


  1. Which is not a service of a factor?
  • Administrating Sales Ledger
  • Advancing against Credit Sales
  • Assuming bad debt losses
  • None of the above


  1. Credit Policy of a firm should involve a trade-off between increased
  • Sales and Increased Profit
  • Profit and Increased Costs of Receivables
  • Sales and Cost of goods sold
  • None of the above


  1. Out of the following, what is not true in respect of factoring?
  • Continuous Arrangement between Factor and Seller
  • Sale of Receivables to the factor
  • Factor provides cost free finance to seller
  • None of the above


  1. Payment to creditors is a manifestation of cash held for:
  • Transactionery Motive
  • Precautionary Motive
  • Speculative Motive
  • All of the above


  1. If the closing balance of receivables is less than the opening balance for a month then which one is true out of
  • Collections>Current Purchases
  • Collections>Current Sales
  • Collections<Current Purchases
  • Collections < Current Sales


  1. If the average balance of debtors has increased, which of the following might not show a change in general?
  • Total Sales
  • Average Payables
  • Current Ratio
  • Bad Debt loss


  1. Securitization is related to conversion of
  • Receivables
  • Stock
  • Investments
  • Creditors


  1. 80% of sales of 10,00,000 of a firm are on credit. It has a Receivable Turnover of 8. What is the Average collection period (360 days a year) and Average Debtors of the firm?
  • 45 days and 1,00,000
  • 360 days and 1,00,000
  • 45 days and 8,00,000
  • 360 days and 1,25,000


  1. In response to market expectations, the credit pence r j been increased from 45 days to 60 days. This would result in
  • Decrease in Sales
  • Decrease in Debtors
  • Increase in Bad Debts
  • Increase in Average Collection Period


  1. If a company sells its receivable to another party to raise funds, it is known as 
  • Factoring
  • Pledging
  • None of the above.
  • Securitization


  1. Cash Discount term 3/15, net 40 means
  • 3% Discount if payment in 15 days, otherwise full payment in 40 days
  • 15% Discount if payment in 3 days, otherwise full payment 40 days
  • 3% Interest if payment made in 40 days and 15%, interest thereafter
  • None of the above


  1. If the sales of the firm are. 60,00,000 and the average debtors are. 15,00,000 then the receivables turnover is
  • 4 times
  • 25%
  • 400%
  • 0.25 times


  1. If cash discount is offered to customers, then which of the following would increase?
  • Sales
  • Debtors
  • Debt collection period
  • All of the above


  1. Receivables Management deals with
  • Receipts of raw materials
  • Debtors collection
  • Creditors Management
  • Inventory Management


  1. Which of the following is related to Receivables Management?
  • Cash Budget
  • Economic Order Quantity
  • Ageing Schedule
  • All of the above


  1. EOQ is the quantity that minimizes
  • Total Ordering Cost
  • Total Inventory Cost
  • Total Interest Cost
  • Safety Stock Level


  1. ABC Analysis is used in
  • Inventory Management
  • Receivables Management
  • Accounting Policies
  • Corporate Governance


  1. If no information is available, the General Rule for valuation of stock for balance sheet is
  • Replacement Cost
  • Realizable Value
  • Historical Cost
  • Standard Cost


  1. In ABC inventory management system, class A items may require
  • Higher Safety Stock
  • Frequent Deliveries
  • Periodic Inventory system
  • Updating of inventory records


  1. Inventory holding cost may include
  • Material Purchase Cost
  • Penalty charge for default
  • Interest on loan
  • None of the above


  1. Use of safety stock by a firm would
  • Increase Inventory Cost
  • Decrease Inventory Cost
  • No effect on cost
  • None of the above


  1. Which of the following is true for a company which uses continuous review inventory system
  • Order Interval is fixed
  • Order Interval varies
  • Order Quantity is fixed
  • Both (a) and (c)


  1. EOQ determines the order size when
  • Total Order cost is Minimum
  • Total Number of orders is least
  • Total inventory costs are minimum
  • None of the above


  1. ABC Analysis is useful for analyzing the inventories:
  • Based on their Quality
  • Based on their Usage and value
  • Based on Physical Volume
  • All of the above


  1. If A = Annual Requirement, O = Order Cost and C = Carrying Cost per unit per annum, then EOQ
  • (2AO/C) 2
  • 2AO/C
  • 2A÷OC
  • 2AOC


  1. Inventory is generally valued as lower of
  • Market Price and Replacement Cost
  • Cost and Net Realizable Value
  • Cost and Sales Value
  • Sales Value and Profit


  1. Which of the following is not included in cost of inventory?
  • Purchase cost
  • Transport in Cost
  • Import Duty
  • Selling Costs


  1. Cost of not carrying sufficient inventory is known as
  • Carrying Cost
  • Holding Cost
  • Total Cost
  • Stock-out Cost


  1. Which of the following is not a benefit of carrying inventories
  • Reduction in ordering cost
  • Avoiding lost sales
  • Reducing carrying cost
  • Avoiding Production Shortages


  1. Which of the following is not a standard method of inventory valuation?
  • First in First out
  • Standard Cost
  • Average Pricing
  • Realizable Value


  1. System of procuring goods when required, is known as,
  • Free on Board (FOB)
  • always Butter Control (ABC)
  • Jest in Time (JIT)
  • Economic Order Quantity


  1. A firm has inventory turnover of 6 and cost of goods sold is 7,50,000. With better inventory management, the inventory turnover is increased to 10. This would result in:
  • Increase in inventory by 50,000
  • Decrease in inventory by 50,000
  • Decrease in cost of goods sold
  • Increase in cost of goods sold


  1. What is Economic Order Quantity?
  • Cost of an Order
  • Cost of Stock
  • Reorder level
  • Optimum order size


  1. The type of collateral (security) used for short-term loan is
  • Real estate
  • Plant & Machinery
  • Stock of good
  • Equity share capital


  1. Which of the following is a liability of a bank?
  • Treasury Bills
  • Commercial papers
  • Certificate of Deposits
  • Junk Bonds


  1. Commercial paper is a type of
  • Fixed coupon Bond
  • Unsecured short-term debt
  • Equity share capital
  • Government Bond


127.Which of the following is not a spontaneous source of short-term funds?

  • Trade credit
  • Accrued expenses
  • Provision for dividend
  • All of the above


  1. Concept of Maximum Permissible Bank finance was introduced by
  • Kannan Committee
  • Chore Committee
  • Nayak Committee
  • Tandon Committee


  1. In India, Commercial Papers are issued as per the guidelines issued by
  • Securities and Exchange Board of India
  • Reserve Bank of India
  • Forward Market Commission
  • None of the above


  1. Commercial paper are generally issued at a price
  • Equal to face value
  • More than face value
  • Less than face value
  • Equal to redemption value


  1. Which of the following is not applicable to commercial paper
  • Face Value
  • Issue Price
  • Coupon Rate
  • None of the above


  1. The basic objective of Tandon Committee recommendations is that the dependence of industry on bank should gradually
  • Increase
  • Remain Stable
  • Decrease
  • None of the above


  1. Cash discount terms offered by trade creditors never be accepted because
  • Benefit in very small
  • Cost is very high
  • No sense to pay earlier
  • None of the above


  1. In lease system, interest is calculated on
  • Cash down payment
  • Cash price outstanding
  • Hire purchase price
  • None of the above


  1. A short-term lease which is often cancellable is known as
  • Finance Lease
  • Net Lease
  • Operating Lease
  • Leverage Lease


  1. Which of the following is not a usual type of lease arrangement?
  • Sale & leaseback
  • Goods on Approval
  • Leverage Lease
  • Direct Lease


  1. Under income-tax provisions, depreciation on lease asset is allowed to
  • Lessor
  • Lessee
  • Any of the two
  • None of the two


  1. Under the provisions of AS-19 ‘Leases’, a leased asset is shown is the balance sheet of
  • Manufacturer
  • Lessor
  • Lessee
  • Financing bank


  1. A lease which is generally not cancellable and covers full economic life of the asset is known as
  • Sale and leaseback
  • Operating Lease
  • Finance Lease
  • Economic Lease


  1. Lease which includes a third party (a lender) is known as
  • Sale and leaseback
  • Direct Lease
  • Inverse Lease
  • Leveraged Lease


  1. One difference between Operating and Financial lease is:
  • There is often an option to buy in operating lease
  • There is often a call option in financial lease
  • An operating lease is generally cancellable by lease
  • A financial lease in generally cancellable by lease


  1. From the point of view of the lessee, a lease is a:
  • Working capital decision
  • Financing decision
  • Buy or make decision
  • Investment decision


  1. For a lesser, a lease is a
  • Investment decision
  • Financing decision
  • Dividend decision
  • None of the above


  1. Which of the following is not true for a “Lease decision for the lessee?
  • Helps in project selection
  • Helps in project financing
  • Helps in project location
  • All of the above


  1. Risk-Return trade off implies
  • Minimization of Risk
  • Maximization of Risk
  • Ignorance of Risk
  • Optimization of Risk


  1. Basic objective of diversification is
  • Increasing Return
  • Maximizing Return
  • Decreasing Risk
  • Maximizing Risk