Free Sources of Business Finance 03 Practice Test - 11th Grade - Commerce
Question 1
The term 'redeemable' is used for which of the following source of finance?
Equity shares
Preference shares
Retained earnings
Loans
SOLUTION
Solution : B
A company may issue this type of shares on the condition that the company will repay the amount of share capital to the holders of this category after a fixed period, or even earlier at the discretion of the company.
Question 2
In terms of tax benefits, which source of finance is preferred by an organization?
Preference shares
Debentures
Equity shares
None of the above
SOLUTION
Solution : B
Debentures, as interest paid on them is tax deductible, which would benefit the organization as compared to preference and equity shares.
Question 3
A lease is a ____ agreement whereby one party, i.e. the owner of the asset, grants the other party the right to use the asset in return for a periodic payment.
Permanent
Temporary
Contractual
Fixed
SOLUTION
Solution : C
A lease is a contractual agreement whereby one party, i.e. the owner of the asset, grants the other party the right to use the asset in return for a periodic payment.
Question 4
Who initiated factoring in the Indian financial scene in the early nineties?
SBI
RBI
UTI
All of the above
SOLUTION
Solution : B
Factoring appeared in the Indian financial scene only in the early nineties as a result of RBI initiatives.
Question 5
Rahul Fashion, a reputed garment manufacturing unit needs to fund its day-to-day expenses, like wages, rent and maintaining a stock of raw material. The owner approached his raw material supplier to give them credit for two months so that he can get cloth for making garments without making immediate payment. The supplier made an enquiry regarding Rahul and found that his reputation of giving payment is not very good. In the past, lenders were not very happy.
What is the source of finance Rahul is trying to get?
Factoring
Trade Credit
Equity Shares
None of the above
SOLUTION
Solution : B
Trade Credit. It is the credit extended by one trader to another for the purchase of goods and services. Trade Credit is a convenient and continuous source of fund. The volume and period of credit depend on the reputation of the purchasing firm, the position of the seller and volume of purchase.
Question 6
Retained earnings are
an indication of a company's liquidity
the same as cash in the bank
not important when determining dividends
the cumulative earnings of the company after dividends
SOLUTION
Solution : D
Retained earnings are the cumulative earnings of the company after dividends.
Question 7
Retained earnings enhance the capacity of the business to absorb unexpected losses.
True
False
SOLUTION
Solution : A
True. Retained earnings enhance the capacity of the business to absorb unexpected losses.
Question 8
Loans from commercial banks is a flexible source of finance.
True
False
SOLUTION
Solution : A
True. Loans from commercial banks is a flexible source of finance, as the loan amount can be increased according to business needs and can be repaid in advance when funds are not needed.
Question 9
State Industrial Development Corporation and Unit Trust of India are examples of
Banks
Export institutions
Think-tanks
Non-banking financial companies
SOLUTION
Solution : D
State Industrial Development Corporation and Unit Trust of India are examples of non-banking financial companies (NBFCs).
Question 10
In the video, the analogy of circulation of blood was used to explain which of the following?
Working capital
Equity
Fixed capital
Cash and inventory
SOLUTION
Solution : A
The analogy of circulation of blood was used to explain how working capital flows and circulates in the business.