Free Sources of Business Finance 01 Practice Test - 11th Grade - Commerce 

Question 1

______ is a prerequisite to creation of a company.

A.

Issuing preference shares

B.

Issuing equity shares

C.

Retaining earnings

D.

All of the above

SOLUTION

Solution : B

Issuing equity shares is a prerequisite to the creation of a company. When a company is formed it can issue shares to the public or to private individuals.

Question 2

Do preference shareholders get an upper hand during the time of liquidation of the company?

A.

True

B.

False

SOLUTION

Solution : A

During the time of liquidation, preference shareholders have the right to receive their investment prior to equity shareholders.

 

Question 3

Payment of fixed rate of dividend to preference shares may enable a company to declare higher rates of dividend for the equity shareholders in good times.

A.

True 

B.

False

SOLUTION

Solution : A

True. Payment of fixed rate of dividend to preference shares may enable a company to declare higher rates of dividend for the equity shareholders in good times.

Question 4

Which one of the following facilitates easy purchase of goods and services without making immediate payment?

A.

Equity Shares

B.

Preference Shares

C.

Trade Credit

D.

Debentures

SOLUTION

Solution : C

Trade credit facilitates easy purchase of supplies without immediate payment. Such credit appears in the records of the buyer of goods as accounts payable.

Question 5

Lease rentals paid by the lessee are deductible for computing taxable profits.

A.

True

B.

False

SOLUTION

Solution : A

True. Lease rentals paid by the lessee are deductible for computing taxable profits, and hence, lead to savings in taxes.

Question 6

The lessee never becomes the owner of the asset.

A.

True

B.

False

SOLUTION

Solution : A

True. The lessee never becomes the owner of the asset. He never reaps the benefits of ownership.

Question 7

A detailed investigation of the company is done in regard to the company affairs while taking a loan from commercial banks.

A.

True

B.

False

SOLUTION

Solution : A

True. A detailed investigation of the company is done in regard to the company affairs, financial structure and also for the company’s security of assets. This makes it a bit hard in obtaining funds.

Question 8

A commercial bank is a financial institution which performs the functions of accepting deposits from the general public and giving loans for investment with the aim of earning profits.

A.

True

B.

False

SOLUTION

Solution : A

True. A commercial bank is a financial institution which performs the functions of accepting deposits from the general public and giving loans for investment with the aim of earning profits.

Question 9

With the issue of debentures, the capacity of a company to further borrow funds reduces.

A.

True

B.

False

SOLUTION

Solution : A

True. Each company has certain borrowing capacity. With the issue of debentures, the capacity of a company to further borrow funds reduces.

Question 10

Interest on debentures is also called ________.

A.

Fixed rate 

B.

Borrowing rate 

C.

Coupon rate 

D.

None of the above

SOLUTION

Solution : C

Interest on debentures is also called coupon rate.