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MODULE D : CREDIT MANAGEMENT 

1. Cash = Rs. 6,00,000
Debtors = Rs. 9,00,000
Inventories = Rs. 20,00,000
Current liabilities = Rs. 30,00,000
Total current assets = Rs. 40,00,000
The quick ratio = ?
a. 1:1 b. 1.5:1 c. 1:1.5 d. 2:1
Ans - c
Solution :
Quick ratio = Quick asset / CL
Here Quick asset = CA-Inventory
So, Quick asset = 4000000 - 2000000 = 2000000
CL = 3000000
Hence Quick Ratio = 2000000/3000000
= 1:1.5

2. 
 A company has net worth of Rs. 15 lac, term liabilities are Rs. 10 lac. Fixed Assets worth Rs. 16 lac and current assets are Rs. 25 lac. There is no intangible assets or the non current assets. Calculate it's net working capital.
a. 6 lac b. 7 lac c. 8 lac d. 9 lac
Ans - d
Total Assets
= Total liabilities
Total Assets
= Fixed Assets + current assets

= 16 + 25 = 41
So total liabilites must be 41 lac
Now out of 41 lac, the long term liability is 25 lac (15 + 10) Hence CL = 41 - 25 = 16 lac
Now we have CA = 25 lac and CL = 16 lac
NWC = 25 - 16 = 9 lac

3. The balance sheet of a firm has shown total asset of Rs 20 lacs. The long term uses are Rs 11 lacs and current ratio 1.5:1. What is the amount of current liabilities ?
a. Rs 11 lacs b. Rs 9 lacs c. Rs 7 lacs d. Rs 6 lacs
Ans - d
Solution: Total Assets - long term asset
= current Assets

Hence, current assets = 20 - 11 = 9.00 lac
Current ratio 1.5:1
Current ratio = Current Assets / Current Liabilities
1.5:1 = 9 / Current liabilities Current liabilities
      = 9/1.5
= 6 lac

4.
 The amount of instalment of a term loan is fixed at Rs. 25000/- per month and the monthly average interest on the account is Rs. 15000/-. If the amount of depreciation is Rs. 60000/- p.a. and profit after tax Rs. 600000/-. What is DSCR ?
a. 1.5 b. 1.75 c. 2 d. 2.5
Ans - b
DSCR
= (Interest + PAT + Depreciation + other non cash expenses) / (interest + instalment on TL)

= (15000×12+600000+60000)/(15000×12+25000×12)
= 840000/480000 = 1.75

5. Current ratio of a unit is 3:1 and quick ratio is 1:1. The level of current assets is Rs 15 lac. What is the amount of quick asset?
a. Rs 3 lac b. Rs 5 lac c. Rs 7 lac d. Rs 9 lac
Ans - b
Solution :
CR = CA:CL CA:CL = 3:1 15:CL= 3:1 CL = 5 lac Now QR= 1:1 QR= Quick asset/CL Quick asset/CL = 1:1 QA = CL = 5 lac

6. Current Assets are Rs. 25 lac and Current ratio is 3:1. If Working capital turn over ratio is 8 and net profit to sales percent 11%, find the amount of net profit.
a. Rs. 11 lac b. Rs. 22 lac c. Rs. 33 lac d. Rs. 44 lac
Ans - b
Solution :
Current assets are Rs. 25 lac
Now since we turn over ratio is 8 that means the total turn over will be 25 × 8 = 200 lac
Then profit should be 200 × 11% = 22 lac

7.  Cash = Rs. 2,00,000
Debtors = Rs. 5,00,000
Inventories = Rs. 10,00,000
Current liabilities = Rs. 15,00,000
Total current assets = Rs. 25,00,000
The quick ratio = ?
1) 1:1 2) 1.5:1 3) 2:1 4) 2.5:1
Ans - a
Solution :
Quick ratio = Quick asset / CL
Here Quick asset = CA-Inventory
Now CA = Rs. 25,00,000 and inventories = Rs. 10,00,000
So, Quick asset = 2500000 - 1000000 = 1500000
CL = 1500000
Hence Quick Ratio
= 1500000/1500000

= 1:1

8.  The balance sheet of a firm has shown total asset of Rs. 35 lacs. If the current ratio 2:1 and the long term uses are Rs. 20 lacs, What is the amount of current liabilities ?
a. Rs. 6 lacs b. Rs. 7.5 lacs c. Rs. 9 lacs d. Rs. 10.5 lacs
Ans - b
Solution:
Total Assets - long term asset = current Assets
Hence, current assets
= 35 - 20 = 15 lac

Current ratio 2:1
Current ratio = Current Assets / Current Liabilities
2:1 = 15 / Current liabilities
Current liabilities = 15/2 = 7.5 lac

9. Capital is Rs 180,
Reserves Rs 20,
term loan Rs 300,
Bank cash credit Rs 200,
trade creditors Rs 50,

provisions Rs 50/-,
net fixed assets Rs 400,
inventories Rs 150,
cash Rs 50,
Receivables Rs 150,
goodwill Rs
50.
What is current ratio?

a. 1 b. 1:1.17 c. 1.17:1 d. 2
Ans - c
Let me Explain
CA= 50+150+150= 350
CL= 200+50+50=300
CR = CA:CL
    = 350:300

     i.e 1.17:1

10. As on end of previous financial year,
XYZ Bank has :

Total Advances - Rs. 80,000 Cr
ANBC (Adjusted Net Bank Credit) - Rs. 75000 Cr Agriculture Advances - Rs. 13500 Cr
MSE Advances - 5000 Cr
Weaker Section Advances - Rs. 8500 Cr
Total Priority Sector Advances - Rs. 29000 Cr
Answer the following based of the above information Whether the Bank has achieved the target for Agriculture Advances?
a. Yes. The Bank has just achieved the target
b. Yes. the Bank has exceeded the target
c. No. The Bank has defaulted in achieving the target
d. No such target for Agriculture Advances
Ans - a

11. 
Whether the Bank has achieved the target for MSE Advances?
a. Yes. The Bank has just achieved the target
b. Yes. the Bank has exceeded the target
c. No. The Bank has defaulted in achieving the target
d. No such target for Agriculture Advances
Ans - d

12. Whether the Bank has achieved the target for Weaker Section Advances?
a. Yes. The Bank has just achieved the target
b. Yes. the Bank has exceeded the target
c. No. The Bank has defaulted in achieving the target
d. No such target for Agriculture Advances
Ans - b

13. Whether the Bank has achieved the target for Priority Sector Advances?
a. Yes. The Bank has just achieved the target
b. Yes. the Bank has exceeded the target
c. No. The Bank has defaulted in achieving the target
d. No such target for Agriculture Advances
Ans - c

14. Which of the following is not correct regarding term loans by the banks?
a. Asset liability matching is an important consideration in term financing
b. Installment of term loan, payable within one year is considered as current liability
c. Repayment of a term loan can be in equated monthly installments
d. Current ratio is the most important ratio in appraisal of a term loan
Ans - d

15. Project loans can be given by the bank to
a. Only corporate
b. Only corporate and partnership firms
c. Only corporate, partnership firms and societies d. Any business entity
Ans – d

16. Which of the following is not a method for detecting wrong mention of receivables in stock statement submitted by the borrower?
a. Analysis of financial statements
b. Cross check from the balance sheet figure
c. Receivables audit
d. Inspection of books of account
Ans - a

17. Which of the following is not a method for detecting wrong mention of inventory in a stock statement?
a. Stock audit
b. Inspection of stocks
c. Analysis of financial statements
d. Cross-check from the balance sheet figure
Ans - c

18.
 Which of the following is not a danger sign about the direction of business of the borrower?
a. Devolvement of LCs, invocation of Bank Guarantees
b. Demand for higher limit
c. Delays in submission of stock/receivables statements
 d. Return of cheques or bills
Ans – d

19. Which of the following is not a purpose of credit monitoring?
a. To ensure end use of the funds by the borrower
b. To detect any deterioration in the security charged to the bank
c. To comply with the guidelines of the RBI
d. To ascertain that the business continues to run on the projected lines
Ans - c

20. Which of the following is not a tool available to check the bank for credit monitoring?
a. Sending regular reminders to the borrower
b. Periodic visits to the business place for inspection
c. Analysis of financial statements
d. Examine conduct of borrower's account
​ Ans - a

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