Financial Management M.com

  M.COM PART 2 FINANCIAL MANAGEMENT MCQ 1. The average collection period for a firm measures the number of days (a) After a typical credit sale is made until the firm receives the payment (b) For a typical check to “clear” through the banking system (c) Beyond the end of the credit period before a typical customer payment is received (d) Before a typical account becomes delinquent ANS: A   2. Which of the following is not the logical consequence of liberalizing credit standards? (a) Sales tend to increase (b) Investment in receivables tend to increase (c) Bad debt losses tend to increase (d) Requirement of finance for working capital tends to decrease (e) Collection costs tend to increase ANS: D   3. Which of the following statements is not true? (a) If credit standards are liberalized, then sales will increase (b) Strict credit standards will tend to reduce the incidence of bad debt loss (c) Increase in credit period will tend to increase the investment in receivables (d) Liberalizing cash discount policy will tend to increase the average collection period (e) A rigorous collection effort tends to increase the collection expense ANS: D   4. Which of the following does not result from liberalizing credit standards? (a) It leads to higher bad debt loss (b) It causes an increase in sales (c) It reduces the cost of collection (d) It increases the investment in receivables (e) Requirement for financing working capital tends to increase ANS: C   5. Which of the following is/are not technique(s) for monitoring collection of receivables? (I) Ageing schedule (ii) Lockbox arrangements (iii) Days sales outstanding (iv) Funds flow analysis (a) Only (I) above (b) Only (iv) above (c) Both (i) and (iii) above (d) Both (ii) and (iv) above ANS: D   6. The average collection period measures the (a) Number of days it takes a typical cheque to “clear” through the banking system (b) Number of days between the day a customer places an order with the firm and the day the firm sends the goods to the customers (c) Number of days beyond the end of the credit period and before a typical customer payment is received (d) Number of days between the day when a typical credit sale is made and the day when the firm receives the payment ANS: D   7. Which of the following statements is true about the terms of trade credit 2/10, net 30? (a) 10% cash discount is offered for payment before 30 days (b) 2% cash discount is awarded for payment on the 30th day after purchase (c) 10% cash discount can be taken if paid by the second day after invoicing (d) No cash discount is offered from the eleventh day onwards after the date of purchase ANS: D   8. Which of the following costs is not a cost of maintaining receivables? (a) Administrative costs (b) Collection costs (c)Ordering costs (d) Defaulting costs (e) Financing costs ANS: C   9. An ageing schedule gives particulars about (a) Profit and present value (b) Accounts receivable and proportion of sales (c) Employees and age of their service (d) Age-wise distribution of accounts receivable ANS: D   10. Which of the following is/are not true? (i) If credit standards are made more stringent, sales are likely to decrease and less amount of money will be locked up in receivables. (ii) If credit period is lengthened, sales are likely to increase but bad debt losses are likely to decrease. (iii) If cash discount is increased, discount paid is likely to increase and amount of receivable is likely to reduce.(a) Only (ii) above (b) Only (iii) above (c) Both (i) and (ii) above (d) Both (ii) and (iii) above (e) Both (i) and (iii) above ANS: A   11. Which of the following statements is true about the terms of trade credit 4/10, net 30? (a) A 10% cash discount is offered for payment before 30 days (b) A 4% cash discount can be taken for payment before the 10th of the following month after invoicing (c) A 10% cash discount can be taken if paid by the fourth day after invoicing (d) No cash discount is offered from the eleventh day onwards after the date of purchase (e) 4% cash discount is awarded for payment on the 30th day after purchase ANS: D   12. Which of the following measures is not adopted to monitor the payment of receivables ? (a) Days sales outstanding (b) Ageing Schedule of Receivables (c) Numerical Credit Scoring (d) Average Collection Period ANS: C   13. Which of the following is a logical consequences of liberalizing credit standards? (a) Collection costs tend to decrease (b) Bad debt losses tend to increase (c) Sales tend to decrease (d) Cost of funds locked in receivables tend to decrease (e) Requirement for financing working capital tends to decrease ANS: B   14. Other things remaining the same, which of the following will generally result as a consequence of making the credit standards more stringent (strict / tight)? (a) More bad debt losses (b) Increase in the number of customers (c) Higher sales turnover (d)Reduction of the outstanding debtors in the balance sheet (e) Incremental cost of collection of the receivables ANS: D   15. Which of the following is a technique for monitoring the status of the receivables ? (a) Ageing Schedule (b) Outstanding creditors (c) Selection Matrix (d) Funds Flow Analysis (e) Credit Evaluation ANS: A   16. Which of the following is not part of collection program ? (a) Dispatch of letters to customers whose due date is approaching (b)Monitoring the state of payables (c) Telegraphic and telephonic advice to customers around the due date (d) Threat of legal actions to overdue accounts (e) Legal action against overdue accounts ANS: B   17. When a company offers credit terms of 2/10, net 30, the annual interest cost, based on a 360-day year, is (a) 24.0% (b) 35.3% (c) 36.0% (d) 36.7% ANS: