Shares and Mutual Funds-6

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Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

Earning per share (EPS): It is a financial ratio that gives the information regarding earing available to each equity share. It is very important financial ratio for assessing the state of market price of share. The EPS statement is applicable to the enterprise whose equity shares are listed in stock exchange.

Types of EPS:

1.            Basic EPS ( with normal shares)

2.            Diluted EPS (with normal shares and convertible shares)

EPS Statement                    :          

Sales                                                       ****

Less: variable cost                                 ****

                                                           ----------------

                                           Contribution      ****

Less: Fixed cost                                          ****

                                                          ----------------

                                                EBIT             *****

Less: Interest                                              *****

                                                          ----------------

                                               EBT           ****

Less:  Tax                                                 ****   

                                                        -----------------             

                                        Earnings           ****

 Less: preference dividend                    ****

                                                       -----------------

Earnings available to equity

Share holders (A)                                      *****

                                                      -----------------

EPS=A/ No of outstanding Shares

EBIT and Operating Income are same

The higher the EPS, the better is the performance of the company.

Cash Flow Statement: It is a statement which shows inflows (receipts) and outflows (payments) of cash and its equivalents in an enterprise during a specified period of time. According to the revised accounting standard 3, an enterprise prepares a cash flow statement and should present it for each period for which financial statements are presented.

Funds Flow Statement: Fund means the net working capital. Funds flow statement is a statement which lists first all the sources of funds and then all the applications of funds that have taken place in a business enterprise during the particular period of time for which the statement has been prepared. The statement finally shows the net increase or net decrease in the working capital that has taken place over the period of time.

Float: The difference between the available balance and the ledger balance is referred to as the float.

Collection Float: The amount of cheque deposited by the firm in the bank but not cleared.

Payment Float: The amount of cheques issued by the firm but not paid for by the bank.

Operating Cycle: The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivables.

Financial Accounting multiple choice questions

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FINANCIAL ACCOUNTING QUESTION PAPER

1.    Accounting principles are generally based on :

1. Subjectivity                                                       2. Convenience in recording

3. Practicability                                                     4. All of the above

2.    Generally the Accounting is :

1. Accountancy                                                     2. Business language

3. Business                                                            4. None of these

3.    Which is the responsibility of Accounting ?

1. Classification                                                     2. Summarizing

3. Recording                                                         4. All of the above

4.    The system of recording transactions based on dual concept is called ?

1. Double accounting system                               2. Single entry system

3. Double entry system                                         4. None of these

5.    Accounting is a ?

1. Science                                                             2. Art

3. Both 1 & 2                                                         4. None of these

6.    According to money measurement concept the following will be recorded in the books of accounts :

1. Value of the building                                         2. Quality control in the business

3. Health of the Employees of the company        4. All of the above

7.    According to the – concept the proprietor is treated as a creditor to the extent of his capital :

1. Cost                                                                   2. Money measurement

3. Entity                                                                 4. Dual Aspect

8.    Cost concept envisages the recording of the following in the books of Accounts ?

1.    Knowledge and will acquired by business executive

2.    Change effected because of some political events

3.    An asset an its cost

4.    None of these

     

9.    Purpose of Accounting is to provide financial information to :

1. Board of directors                                             2. Tax Authorities

3. Investors                                                           4. Share holders

5. All of the above

10.  According to the money measurement concept, the following will be recorded in the books of accounts ?

1.    Extra profits made due introduction of a budgetary control system

2.    Quality control in the business

3.    Commission payable to a salesman

4.    All of the above

11.  Bank Account is a :

1. Nominal Account                                              2. Real Account

3. Personal Account                                             4. None of these

12.  According to going concern concept a business is viewed as having :

1. A limited life                                                      2. An indefinite life

3. A very long life                                                  4. None of these

13.  The convention of conservatism will have the effect of :

1. Overstatement of assets                                  2. Understatement of liabilities

3. understatement of assets

4. Understatement of provisions for bad and doubtful debts

14.  Stock-in-trade does not include :

1. Raw material                                                     2. Items held as fixed assets

3. Finished goods                                                  4. Goods in the process of manufacture

15.  The term fixed assets include :

1. Stock of finished goods                                    2. Bank balance

3. Goodwill                                                            4. Loose tools

16.  The term current assets does not include :

1. stock-in-trade                                                    2. Cash

3. debtors                                                              4. Building

17.  Current liabilities do not include :

1. Unclaimed dividend                                          2. Creditors

3. Capital                                                               4. Bank overdraft

18.  Heavy initial advertisement expense on introducing a new product in the market should be classified as :

1. Capital expenditure                                           2. Deferred revenue expenditure

3. Revenue expenditure                                       4. None of these

19.  A chartered Accountant who renders accounting new product in the market should be classified as :

1. Government Accountant                                  2. Private Accountant

3. Public Accountant                                             4. Internal Accountant

20.  Market value of investments is shown as a foot note to balance sheet according to:

1. consistency concept                                         2. Disclosures concept

3. materiality concept                                           4. Going concern concepts

 

21.  Secret reserves may result by :

1. overvaluation of stock                                      2. Creating general reserve

3. providing excessive depreciation                     4. Under valuation of liabilities

22.  A reserve is a charge against ?

1. Trading Account                                               2. Profit and loss appropriation account

3. Profit and loss account                                     4. None of these

23.  What sort of reserve is a provision ?

1. General reserve                                                2. Capital reserve

3. Specific reserve                                               4. None of these

24.  According to the money measurement concept which of the following will be recorded in the books of account ?

1. Quality control in the business              2. Commission payable to salesman

3. Extra profit made owing to a new system        4. All of the above 

ANSWERS 

1.3       2.1       3.3       4.3       5.3       6.1       7.3       8.3       9.5       10.3     11.3     12.2

13.2     14.2     15.3     16.4     17.4     18.2     19.3     20.2     21.3     22.2     23.3     24.2