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Business finance - class-XII

Description: business finance
Number of Questions: 26
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Tags: financial management commerce business finance business studies financing
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Financial planning arrives at __________________.

commerce business finance financial planning financing financial management

  1. Minimising the external borrowing by resorting to equity issues

  2. Entering that the firm always have significantly more fund than required so that there is no paucity of funds

  3. ensuring that the firm paces neither a shortage nor a glut of unuable funds

  4. doing only what is possible with the funds that the firm has at tis disposal

Show answer
Correct Option: A
Explanation:

Financial planning aims at ensuring that the firm faces neither a shortage nor a glut of unusable funds. If there is shortage of funds then the firm will not be able to carry out its planned activities and commitment. On the other hand if there is excess funds available then it adds to cost of business which encourages waste of funds. Thus, financial planning focuses on ensuring the availability of just enough funds at right time.

The difference between current assets and current liabilities is:

commerce business finance financial planning financing financial management

  1. Gross working capital

  2. Net working capital

  3. Permanent working capital

  4. Temporary working capital

Show answer
Correct Option: B

Plans made for a period of _____ year or less is termed as budget.

commerce business finance financial planning financing financial management

  1. one

  2. two

  3. three

  4. four

Show answer
Correct Option: A
Explanation:

A budget is a financial plan for a defined period of time, usually a year.

A budget is the sum of money allocated for a particular purpose and the summary of intended expenditures along with proposals for how to meet them. It may include a budget surplus, providing money for use at a future time, or a deficit in which expenses exceed income.

________ funding is almost as bad as inadequate funding.

commerce business finance financial planning financing financial management

  1. Limited

  2. Short

  3. Excess

  4. Long

Show answer
Correct Option: C
Explanation:

Excess funding is almost as bad as inadequate funding. Funding involves cost like interest on loans which is a burden on the company.

Excess funding will result in excess interest on capital which is a negative impact on the company's financial position.

Financial planning usually begins with the preparation of a _______ forecast.

commerce business finance financial planning financing financial management

  1. purchase

  2. sales

  3. cash

  4. budget

Show answer
Correct Option: B
Explanation:
Financial planning usually begins with the preparation of a sales forecast.
It starts with an estimate of the sales which are likely to happen in the next five years. Based on these, the financial statements are prepared keeping in mind the requirement of funds for investment in the fixed capital and working capital. Then the expected profits during the period are estimated so that an idea can be made of how much of the fund requirements can be met internally i.e. through retained earnings. This results in an estimation of the requirement for external funds. Further, the sources from which the external funds requirement can be met are identified and cash budgets are made, incorporating these factors.

Financial planning helps in coordinating _________ business functions.

commerce business finance financial planning financing financial management

  1. one

  2. two

  3. various

  4. three

Show answer
Correct Option: C
Explanation:
Financial planning is an important part of overall planning of any business enterprise. It aims at enabling the company to tackle the uncertainty in respect of the availability and timing of the funds and helps in smooth functioning of an organisation.

Financial planning tries to link the ______ with the ______.

commerce business finance financial planning financing financial management

  1. future, present

  2. present, past

  3. present, future

  4. past, future

Show answer
Correct Option: C
Explanation:

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise. Financial planning relates present financial requirement with future requirement by anticipating the sales and growth plans of the company.

_________ plan of action prepared under financial planning reduces waste, duplication of efforts, and gaps in planning.

commerce business finance financial planning financing financial management

  1. Detailed

  2. Short

  3. General

  4. Basic

Show answer
Correct Option: A
Explanation:
Financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal plans.
Therefore detailed plan of action is prepared under financial planning reduce waste, duplication of efforts, and gaps in planning.

Working capital is _______________.

commerce business finance financial planning financing financial management

  1. net current assets

  2. net working capital

  3. gross cash inflow

  4. Either (a) or (b)

Show answer
Correct Option: D

Working capital is _________.

commerce business finance financial planning financing financial management

  1. gross cash inflow

  2. net cash inflow

  3. gross cash outflow

  4. net cash outflow

Show answer
Correct Option: B,D

Working capital is the difference between

commerce business finance financial planning financing financial management

  1. Inflow and outflow of funds

  2. Inflow and outflow of savings

  3. Internal and external capital sources

  4. Gross cash flow and net cash flow

Show answer
Correct Option: A

Financial leverage is

commerce business finance financial planning financing financial management

  1. The process of using debt capital to increase the rate of return on equity

  2. The utilisation of current assets to effect disproportionate changes in income

  3. Both (a) and (b)

  4. A relationship between preference share capital and securities

Show answer
Correct Option: A

If on account of inadequacy of profits, a company wants to pay dividends out of previous year's reserves, it has to follow the rules made by

commerce business finance financial planning financing financial management

  1. Central Government

  2. State Government

  3. Articles of Association

  4. Memorandum of Association

Show answer
Correct Option: A

Choose the correct answer:
(a) Working capital management is an integral part of overall corporate management
(b) There are four tests of working capital policy

commerce business finance financial planning financing financial management

  1. Both (a) and (b) are true

  2. (a) is true, (b) is false

  3. (a) is false, (b) is true

  4. Both (a) and (b) are false

Show answer
Correct Option: A

Accumulated profits

commerce business finance financial planning financing financial management

  1. Are the profits possessed by the company on the date of liquidation

  2. Include the amounts of Development Rebate

  3. Are the profits in the hands of the company at the time of distribution of payment

  4. All the above

Show answer
Correct Option: D

Factors determining working capital:

commerce business finance financial planning financing financial management

  1. Nature of Industry and the nature of business

  2. Demand of creditors and volume of sales

  3. Cash requirements and inventory turnover

  4. All the above

Show answer
Correct Option: D

Cash dividends are ordinarily paid from _______.

commerce business finance financial planning financing financial management

  1. current earnings

  2. retained earnings

  3. paid-in-surplus

  4. capital surplus

Show answer
Correct Option: A

Direct plan can be made for which one of the following.

commerce business finance financial planning financing financial management

  1. Sales message

  2. Request refusal letters

  3. Claims letters

  4. None of the above.

Show answer
Correct Option: D
Explanation:

Direct plan can only be made for event which are sure to happen in a manner as foreseen and predicted by the planners. Therefore, it cannot be made for sales message, request refusal letters and claim letters which are unpredictable in nature.

 ______ means pre-estimating financial needs of an organization to ensure availability of adequate finance.

commerce business finance financial planning financing financial management

  1. Financial planning

  2. Material planning

  3. Value chain planning

  4. Capital structure decision

Show answer
Correct Option: A
Explanation:

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Financial Planning has got many objectives to look forward to:
  • Determining capital requirements- This will depend upon factors like cost of current and fixed assets, promotional expenses and long- range planning. Capital requirements have to be looked with both aspects: short- term and long- term requirements.
  • Determining capital structure- The capital structure is the composition of capital, i.e., the relative kind and proportion of capital required in the business. This includes decisions of debt- equity ratio- both short-term and long- term.
  • Framing financial policies with regards to cash control, lending, borrowings, etc.
  • A finance manager ensures that the scarce financial resources are maximally utilized in the best possible manner at least cost in order to get maximum returns on investment.

What are the twin objectives of financial planning?

commerce business finance financial planning financing financial management

  1. To ensure availability of funds whenever require

  2. To see that the firm does not raise resources unnecessarily

  3. Both a and b

  4. None of the above

Show answer
Correct Option: C
Explanation:
Financial planning strives to achieve the following twin objectives.
a) To ensure availability of funds whenever required: This include a proper estimation of the funds required for different purposes such as for the purchase of longterm assets or to meet day-to-day expenses of business etc. Apart from this, there is a need to estimate the time at which these funds are to be made available. Financial planning also tries to specify possible sources of these funds.
(b) To see that the firm does not raise resources unnecessarily: Excess funding is almost as bad as inadequate funding. Even if there is some surplus money, good financial planning would put it to the best possible use so that the financial resources are not left idle and don’t unnecessarily add to the cost.

The twin objective to ensure availability of funds whenever required, includes a proper estimation of the funds required for different purposes such as for the purchase of _______ assets or to meet day-today expense of business.

commerce business finance financial planning financing financial management

  1. short-term

  2. long-term

  3. current

  4. non-current

Show answer
Correct Option: B
Explanation:

Financial management involves decision about the proportion of long term and short term finance. An organisation wanting to be more liquid would raise relatively more amount of long term bass and vice versa. There is a choice between liquidity and profitability. The underlying assumption here is that the current liability cost less than long term liability. 

The process of estimating the fund requirement of a business and specifying the sources of funds is called ____________.

commerce business finance financial planning financing financial management

  1. working capital

  2. financial planning

  3. capital structure

  4. working structure

Show answer
Correct Option: B
Explanation:

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Financial planning is done for ______ to _______ years.

commerce business finance financial planning financing financial management

  1. One, two

  2. two, three

  3. three, five

  4. five, ten

Show answer
Correct Option: C
Explanation:
Financial planning is done for three to five years. For longer periods it becomes more difficult and less useful. Plans made for periods of one year or less are termed as budgets. Budgets are example of financial planning exercise in greater details. They include detailed plan of action for a period of one year or less.

Avoiding business shocks and surprises and helping the company in preparing for the future is the _________ of financial planning.

commerce business finance financial planning financing financial management

  1. factor

  2. objective

  3. importance

  4. disadvantage

Show answer
Correct Option: C
Explanation:

Importance of financial planning

  1. Income: It's possible to manage income more effectively through planning. Managing income helps you understand how much money you'll need for tax payments, other monthly expenditures and savings.
  2. Cash Flow: Increase cash flows by carefully monitoring your spending patterns and expenses. Tax planning, prudent spending and careful budgeting will help you keep more of your hard earned cash.
  3. Capital: An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being.
  4. Family Security: Providing for your family's financial security is an important part of the financial planning process. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones.
  5. Investment: A proper financial plan considers your personal circumstances, objectives and risk tolerance. It acts as a guide in helping choose the right types of investments to fit your needs, personality, and goals.
  6. Standard of Living: The savings created from good planning can prove beneficial in difficult times. For example, you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work.
  7. Financial Understanding: Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood, and results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle.
  8. Assets: A nice 'cushion' in the form of assets is desirable. But many assets come with liabilities attached. So, it becomes important to determine the real value of an asset. The knowledge of settling or canceling the liabilities, comes with the understanding of your finances. The overall process helps build assets that don't become a burden in the future.
  9. Savings: It used to be called saving for a rainy day. But sudden financial changes can still throw you off track. It is good to have some investments with high liquidity. These investments can be utilized in times of emergency or for educational purposes.
  10. Ongoing Advice: Establishing a relationship with a financial advisor you can trust is critical to achieving your goals. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you.

____________ means pre-estimating financial needs of an organization to ensure availability of adequate finance.

commerce business finance financial planning financing financial management

  1. Financial planning

  2. Material planning

  3. Value chain planning

  4. Capital structure decision

Show answer
Correct Option: A
Explanation:

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives.

The working capital term loan representing excess borrowings

commerce business finance financial planning financing financial management

  1. Should be gradually reduced

  2. Should be allowed to go up

  3. Should not be allowed to go up

  4. Both (a) and (c)

Show answer
Correct Option: D
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