Birla Institute of Technology & Science, Pilani

Hyderabad Campus
Comprehensive Examination (Open Book)
Marks: 100 Points
Course Title: FUNDA OF FIN AND ACCOUNT Course No.: ECON F212/FINF212

Fill in the blanks:

1. Accountants treat a business as distinct from the persons who own it. This concept is
called________.
2. Suppose a firm purchases a piece of land for Rs. 1,50,000 but considers it as worth Rs.
3,00,000.The purchase will be recorded at Rs. 1,50,000 and not any more. This concept is
called ____________.
3. Accounting practices should be same from one year to another. For example, it would not be
proper to value stock in trade according to one method one year and according to another
method next year. This convention is known as___________.
4. An item of expenditure whose benefit expires within a year or expenditure which merely
seeks to maintain the business or keep assets in good working condition is
________expenditure.
5. Three basic rules about recording transactions are: Debit the ______ and credit the _____;
Debit what _____ and credit what ________; Debit all ___________and credit all
_______________.
6. ____________ account increases on the credit side and decreases on the debit side.
7. Gain or loss on disposal of an asset is the difference between the sale price of an asset
and the cost or valuation less _____________ up to the date of disposal.
8. _________are those costs of production which by their very nature remain relatively
unaffected in a defined period of time by variations in volume of production.
9. _________ratios measure the short-term solvency of a firm. They measure the relationship
between current assets and current liabilities, and indicate the firm’s ability to honour its
current obligations.

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 10. Debtors turnover ratio is _______________divided by Average Debtors. The number of days
for which book debts remain outstanding is called as ___________ period.

MCQ’s

1) A feature of the corporate form of organization whereby corporate creditors (such as banks or
suppliers) ordinarily have claims against the corporate assets only, not against the personal
assets of the owners.
a) Partnership
b) Limited liability partnership
c) Limited liability
d) Proprietorship

2) _____________ is a method of recording transactions by which revenue, cash, assets, and

liabilities are reflected in the accounts for the period in which they accrue.
a) Cash Basis
b) Accrual Basis
c) Mercantile basis
d) All of the above

3) According to this principle, the expenses incurred in an accounting period should be matched
with the revenues recognised in that period.
a) Duality Principle
b) Revenue Recognition Principle
c) Matching Principle
d) Full Disclosure Principle

4) The accounting principles that conforms to the tendency of accountants to resolve uncertainty
and doubt in favour of understanding assets and revenues and overstating liabilities and
expenses, is known as:
a) Conservatism
b) Materiality
c) Industry practise
d) Consistency
e) None of the above

5) A _____________ is one which is not an actual liability but which will become one on the
happening of some event which is uncertain.
a) Contingent Asset
b) Contingent Liability
c) Both a and b

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 d) None of the above

6) What is the significance of funds flow statement?

a) Analysis of financial operations
b) Appraising the use of working capital
c) Evaluation of firm’s financing
d) All of the above

7) Which of the following is not cash flow from financing activities?

a) Cash proceeds from issuing shares or other similar instruments.
b) Cash proceeds from issuing debentures loans, notes, bonds and other short-or long-term
borrowings
c) Cash repayments of amounts borrowed such as redemption of debentures, bonds,
preference shares.
d) Cash receipts from disposal of fixed assets

8) Debt-equity ratio is the ratio of Total long-term debt to _____________:

a) Shareholder’s Funds
b) Earnings per share
c) Current liabilities
d) Dividend per equity share

9) _____________ is a device for the purpose of breaking up or separating costs into smaller sub
divisions attributable to products or services.
a) Cost Allocation
b) Cost apportionment
c) Cost Unit
d) Cost Absorption

10) The _____________ serves as a basis of cost control and as a measure of productive efficiency,
when ultimately posed with an actual cost. It provides management with a medium by which the
effectiveness of current results is measured and responsibility of deviation placed.

a) Marginal Costing
b) Standard Costing
c) Budgetary Control
d) Uniform Costing

Section-3: Long Answer Questions

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1. Suppose that the current one-year rate (one-year spot rate) and expected one-year T-
bond rates over the following three years (i.e., years 2, 3, and 4, respectively) are as
follows:

1 R1=2.5 % ,E(2r 1 ¿ =3.56%, E(3r 1 ¿ =3.85%, E(4r 1 ¿ =3.93%

In addition, investors charge a liquidity premium on longer-term securities such that:

L1=5 % , L2=0.23 % , L3=0.31 % , L4 =0.35 %
Using the liquidity premium theory, we can calculate current rates for one-, two-,
three-, and four-year maturity Treasury securities.

Identify the wrong (or unnecessary) information in the above table and give one
reason why it is wrong (or unnecessary) information. (2 Marks)

2. Mr. FOFA wants to buy a 2-BHK flat in Worli (Mumbai) after five years and at
present he has ₹76,23,723 (seventy six lakhs twenty three thousand seven hundred
and twenty three rupees) with him. The XYZ bank is willing to pay 7.75% per annum
interest rate on quarterly basis (i.e. compounding frequency). Find out how much Mr.
FOFA gets if he invests with XYZ bank after five years. (5 Points)

3. Mr. FOFA’s father is willing to send his second son/daughter to a famous engineering
college for B.E. Programme and he got to know that it costs ₹4,50,000/- per year for
the next four years. Mr. FOFA’s father also got to know that Mr. FOFA is doing
FOFA course at BHPC, therefore, the father asked Mr. FOFA to calculate how much
he has to invest today so that he will be able to get ₹4,50,000/- on the last day of
every year to pay his second son/daughter fee for the next four years if the annual
interest rate is 7.75% and compounding frequency is semi-annual. (5 Points)

4. Calculate price of the bond using the following information. Face value ₹1000;
coupon rate = 8 percent with semi-annual payment; maturity period=8 year; required
rate = 8% per annum. (5 Points)

5. FOFA Ltd. is promising to pay ₹3.75 as dividend each year for ever whoever invests
in this company and the current expected rate of return on this stock is 7.25 percent.
Find out the market price of this (FOFA) stock? (5 Points)

6. Assume that FOFA bond is currently priced at 932 and its a face value is 1,000.
Coupon payments occur twice per year and it has 12 years left until maturity. This
bond is known as………. (Name it and explain why it is like that)

7. Assume that FOFA country's Treasury bill is selling at a price of 9,790. The face or
par value is 10,000. The bill has 91 days to maturity. What is the bond equivalent rate
on this bill?

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8. If a bond equivalent yield is 3.30%, on a 126 day XYZ Treasury bill. What is the
price, expressed as a percentage of face value? (Answer should be in four decimals)

9. A negotiable CD issued by New National Bank will mature in 60 days. The CD's
quoted annual interest rate, based on a 360-day year, is 4.80%. What is the effective
annual interest rate on this CD?