MCQs on Analysis of Financial Statements

MCQs on Analysis of Financial Statements

All these questions have been taken from previous year CBSE examination question papers.

Question 1:

The Quick Ratio of a company is 1 : 2. Which of the following transactions will result in an increase in this ratio?

Cash received from debtors
*Sold goods on credit
Purchased goods on credit
Purchased goods on cash

Question 2:

Identify which of the following would result in inflow of cash from operating activities:

Payment to creditors
Interest received by a non-finance company
Dividend received by a non-finance company
*Amount received from debtors

Question 3:

Analysis of Financial Statements is useful and significant to different users. Which of the following users is particularly interested in firm's ability to meet their claims over a very short period of time?

Labour Unions
*Trade Payables
Top Management
Finance Manager

Question 4:

_____ ratios are calculated to determine the ability of the business to service its debt in the long run.

Liquidity
Turnover
*Solvency
Profitability

Question 5:

Acquisition of machinery by issue of equity shares will result in:

Cash inflow from financing activities
Cash outflow from financing activities
Cash outflow from investing activities
*No flow of cash

MCQs on Analysis of Financial Statements

Question 6:

The transaction "Capital gains tax paid on sale of fixed assets" is classified under which of the following:

Operating Activities
*Investing Activities
Financing Activities
Cash and Cash Equivalents

Question 7:

Which of the following is not an objective of Analysis of Financial Statements?

To assess the current profitability and operational efficiency of the firm.
To ascertain the relative importance of different components of the financial position of the firm.
*To consider the impact of price level changes.
To identify the reasons for change in the profitability/financial position of the firm.

Question 8:

_______ is also known as Acid-Test Ratio.

Current Ratio
*Quick Ratio
Gross profit Ratio
Operating Ratio

Question 9:

Current Ratio of Super Ltd. is 2 : 1. Which of the following transactions will result in decrease in this ratio?

Payment of ₹40,000 to creditors
Sale of furniture (book value ₹38,000) for ₹16,000 only
*Repayment of long-term loan of ₹7,00,000
Cash collected from debtors ₹1,18,000

Question 10:

Statement I: Issue of Debentures will result in inflow of cash.

Statement II: Issue of Debentures to the vendors for purchase of machinery will result in outflow of cash.

Choose the correct option from the following:

Both statements are correct.
Both statements are incorrect.
*Statement I is correct, and Statement II is incorrect.
Statement I is incorrect, and Statement II is correct.

MCQs on Analysis of Financial Statements

Question 11:

What will be the effect of “Purchase of Marketable Securities for cash” on Cash Flow Statement?

*No effect
Inflow from financing activities
Outflow from investing activities
Outflow from financing activities

Question 12:

₹5,00,000 to acquire shares in Neligare Industries and received a dividend of ₹30,000 after acquisition.

Cash outflow from financing activities ₹4,70,000
Cash inflow from investing activities ₹4,70,000
Cash inflow from financing activities ₹4,70,000
*Cash outflow from investing activities ₹4,70,000

Question 13:

The Debt-Equity Ratio of a company is 3 : 2. Which of the following transactions will result in increase in this ratio?

Purchase of goods on credit
*Issue of Debentures
Issue of Equity Shares
Cash received from Debtors

Question 14:

Statement I: Issue of fully paid bonus shares out of Securities Premium Account will result in inflow of cash.

Statement II: Cash withdrawn from bank will result in inflow of cash.

In the context of the above two statements, choose the correct option:

Both statement I and statement II are correct
*Both statement I and statement II are incorrect
Statement I is correct, and statement II is incorrect
Statement I is incorrect, and statement II is correct

Question 15:

Which of the following tools of Analysis of Financial Statements indicate the trend and direction of financial position and operating results?

*Comparative statements
Common size statements
Cash flow analysis
Ratio analysis

MCQs on Analysis of Financial Statements

Question 16:

________ indicate the speed at which activities of the business are being performed.

Liquidity ratios
*Turnover ratios
Solvency ratios
Profitability ratios

Question 17:

Which of the following transactions will result in cash flows from operating activities?

Cash receipts from sale of investments ₹60,000
*Cash receipts from sale of goods ₹94,000
Dividend received ₹31,000
Payment of cash for purchase of fixed assets ₹3,00,000

Question 18:

Dividend paid by a Finance Company is classified under which of the following:

Operating Activities
Investing Activities
*Financing Activities
Cash and Cash Equivalents

Question 19:

The Quick Ratio of a company is 1 : 1. Which of the following transactions will result in increase of this ratio?

Purchase of inventory ₹1,50,000 through cheque
*Sold inventory on credit ₹ 50,000
Outstanding expenses of ₹ 40,000 paid
Machinery purchased for cash ₹50,000

Question 20:

Which of the following transactions will result in cash outflow from operating activities?

*Payment to creditors
Proceeds from sale of investments
Dividend received by a non-finance company
Depreciation charged on furniture

MCQs on Analysis of Financial Statements

Question 21:

Which of the following is not a limitation of ‘Analysis of Financial Statements’?

It is just a study of the reports of the company.
It does not consider price level changes.
*It ascertains the relative importance of different components of the financial position of the firm.
It may be misleading without the knowledge of the changes in accounting procedures followed by a firm.

Question 22:

Ratios that are calculated for measuring the efficiency of operations of business based on effective utilization of resources are known as: