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: D
18. The following information regarding a
change in credit policy is given by the WW Company. The company has a required
rate of return of 10% and a variable cost ratio of 60%. Old Credit Policy New
Credit Policy Sales 36,00,000 39,60,000 Average collection period 30 days 36
days. The pretax cost of carrying the additional investment in receivables,
using a 360-day year, would be
(a)Rs. 5,760
(b) Rs.9,600
(c) Rs.8,160
(d) Rs.960
ANS: A
19.LW Company has the opportunity to increase
annual sales Rs.1,00,000 by selling to a new, riskier group of customers. Based
on sales, the bad debt is expected to be 15%, and collection costs will be 5%.
The company's manufacturing and selling expenses are 70% of sales, and its
effective tax rate is 40%. If LW accepts this opportunity, the company's
after-tax profit will increase by
(a) Rs.4,000
(b) Rs.6,000
(c) Rs.10,000
(d) Rs.9,000
ANS: B
20. If a firm's credit terms require payment
within 45 days but allow a discount of 2% if paid within 15 days (using a
360-day year), the approximate cost or benefit of the trade credit terms is
(a) 2%
(b) 16%
(c) 48%
(d) 24%
ANS: D
21. Receivables Management deals with
(a) Receipts of raw materials
(b) Debtors collection
(c) Creditors Management
(d) Inventory Management
ANS: B
22. The one item listed below that is not
considered in credit and collection policy decisions is the
(a) Quality of accounts accepted
(b) Quantity discount given
(c) Cash discount given
(d) Level of collection expenditures
ANS: D
23. When a company analyses credit applicants
and increases the quality of the accounts rejected, the company is attempting to
(a) Maximize sales
(b) Increase bad-debt losses
(c) Increase the average collection period
(d) Maximize profits
ANS: D
24. A change in credit policy has caused an
increase in sales, an increase in discounts taken, a reduction in the
investment in accounts receivable, and a reduction in the number of doubtful accounts.
Based upon this information, we know that
(a) Net profit has increased
(b) The average collection period has decreased
(c) Gross profit has declined
(d) The size of the discount offered has decreased
ANS: B
25. An aging of accounts receivable measures
the
(a) Ability of the firm to meet short-term obligations
(b) Average length of time that receivables have been
outstanding
(c) Percentage of sales that have been collected after a
given time period
(d) Amount of receivables that have been outstanding for
given lengths of time
ANS: D
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