Financial Management | Solved Paper 2016-2017 | 5th Sem B.Sc HHA

Q.1. Explain the objectives and functions of financial management.

Financial management is a critical aspect of any business, and its objectives and functions are crucial in ensuring the success of the company. Below are the objectives and functions of financial management:

Objectives:

1. Maximizing shareholder wealth: One of the primary objectives of financial management is to maximize the wealth of the shareholders. The management must make strategic financial decisions that will increase the value of the company’s stock.
2. Profit Maximization: Another objective of financial management is to maximize the company’s profits by managing costs and increasing revenue.
3. Liquidity management: Maintaining adequate liquidity is also a significant objective of financial management. The management must ensure that the company has enough funds to meet its short-term obligations.

4. Efficient allocation of resources: Financial management aims to ensure that the company’s resources are allocated efficiently to generate maximum returns. This involves making decisions about investments in new projects, acquisitions, and other growth opportunities.
5. Growth and expansion: Financial management helps the company achieve its growth and expansion objectives by identifying growth opportunities, determining the appropriate funding, and implementing strategies to achieve growth targets.

Functions:

1. Financial Planning: Financial planning is a critical function of financial management. It involves developing short-term and long-term financial strategies to achieve the company’s objectives.
2. Capital Budgeting: Capital budgeting is the process of determining which investment opportunities are worth pursuing. Financial management must evaluate the potential benefits and risks of each investment opportunity to make informed decisions.
3. Financial Control: Financial control involves monitoring the company’s financial performance and ensuring that it is in line with the set objectives. Financial management must set financial targets and monitor actual results against them.
4. Risk Management: Financial management must identify, evaluate and manage the company’s financial risks. This includes identifying potential risks, developing strategies to mitigate them, and monitoring the effectiveness of those strategies.
5. Capital Structure Management: Capital structure management involves deciding how the company should finance its operations. Financial management must determine the right balance between debt and equity financing to maximize shareholder value.

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OR How is the finance function organized? What are the functions that the finance department performs in a large organization?

Functions that the finance department performs in a large organization:-

1. Bookkeeping and Payables/Receivables

Bookkeeping is the most basic financial activity in a company. Before a business owner ever considers hiring a CFO, they bring in a bookkeeper, who tracks all of the transactions in the organization, covering both sales and expenses. As the organization grows, it might hire more specialized payables and receivables clerks, to take over functions such as corresponding with vendors and suppliers, above and beyond recording transactions.

2. Financial Reporting and Control

Financial Reporting and Control is the function that takes raw accounting entries and transforms them into usable and comparable financial statements. Requiring far more judgment than the bookkeeper’s role, this function involves everything from ruling on how to implement accounting principles to designing financial processes of the organization, selecting accounting systems, liaising with external auditors, and ensuring that there are no gaps or oversights in existing processes.

3. Tax and Compliance

Running a business involves paying taxes, and paying taxes means doing a lot of calculations and filling out a lot of forms. Often using the financial statements as a basis, along with various other configurations of the information produced by Bookkeeping and Payables/Receivables, the Tax and Compliance function will make sure all of the government forms and filings are sent complete and on time to the taxman. A strong Tax and Compliance function will go one step beyond simple compliance and will find ways to minimize tax, to maximize the company’s net income.

4. Strategic Planning and Financial Planning & Analysis

This function, “FP&A” for short, is the true bridge between the Past and the Future. FP&A regularly creates strategic and financial plans that forecast what financial results (sales and expenses) will look like in future periods. Then, they compare actual results—prepared with the assistance of the Financial Reporting and Control function—to determine areas where the business can improve. With this “variance analysis” complete, they can then prepare more accurate forecasts for the future. A strong FP&A function will not only generate annual forecasts but will be able to update them even over a day or two and run many scenarios that examine the effects of, say, losing a big customer or an economic contraction.

5. Treasury & Working Capital Management

Treasury’s key role is to ensure the company doesn’t run out of cash. This means, among other things, forecasting the upcoming working capital (receivables, payables,, and inventory) needs of the company, investing surplus cash in short-term instruments to generate modest interest income, and managing currency risk.

6. Capital Budgeting

Capital Budgeting is the function responsible for selecting between the various uses of capital, or capital projects. After all, most organizations will have money available to invest in the business, with the hopes of either growing sales or reducing expenses. But the opportunities for spending typically exceed the amount available to spend, so Capital Budgeting develops business cases to evaluate and identify the most effective projects. A strong Capital Budgeting function will not only forecast project benefits, but will also track these benefits over time to determine whether the use of capital was as effective as originally anticipated.

7. Risk Management

Risk Management is a function that is rapidly developing after the financial scandals of the early 2000s (Enron, WorldCom, the Great Recession, and Lehman/Bear Stearns collapse, etc.). In the financial services industry, the function is particularly central as most institutions run with a high amount of debt (leverage), and thought leaders in other industries are also bulking up this function. Risk Management takes a hard look at some of the key risks faced by the company—currency, interest rate, market, operational, legal, etc.—and tries to quantify the possible impacts so that they can be mitigated as much as possible. If FP&A looks at the base case scenario for the company’s financial results, Risk Management takes a wrecking ball to it.

8. Corporate Development & Corporate Strategy

Corporate Development and Corporate Strategy can be widely defined, but it is the area of Finance most heavily populated by former investment bankers and management consultants. As such, common tasks that fall to this function include sourcing and analyzing mergers & acquisitions deals, raising debt and equity financing, making capital structure decisions,, and providing insight into high-level strategic decisions such as entering a new market.

Q.2. Define capital structure. Explain the principles, while forming the capital structure of the organization.

Capital structure refers to the combination of debt and equity financing used by an organization to finance its operations and investments. It refers to the way a company finances its activities and uses different sources of funds to support its growth and expansion.

When forming the capital structure of an organization, several principles should be considered. These principles include:

1. Risk-return tradeoff: The capital structure should be balanced in a way that minimizes the cost of capital and maximizes the return on investment while maintaining an acceptable level of risk.
2. Cost of capital: The cost of capital should be minimized to maximize the value of the organization. The cost of capital includes the cost of equity and debt, and the organization should choose the most cost-effective way to finance its operations.
3. Flexibility: The capital structure should be flexible enough to adapt to changing business conditions, including changes in interest rates, market conditions, and investor preferences.
4. Optimal capital structure: The organization should aim to achieve an optimal capital structure that balances the benefits and costs of debt and equity financing. This is the point at which the organization’s cost of capital is minimized, and the value of the organization is maximized.
5. Market conditions: The capital structure should be designed to take into account market conditions, including the availability of debt and equity financing, interest rates, and investor sentiment.
6. Tax considerations: The organization should consider the tax implications of different sources of financing. Interest payments on debt are tax-deductible, while dividends on equity are not. Therefore, debt financing may be more tax-efficient than equity financing.
7. Financial flexibility: The capital structure should provide the organization with the financial flexibility to fund its operations, investments, and growth opportunities.

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OR Define working capital. What factors would you take into consideration in estimating the working capital needs of a budget hotel?

Working Capital:

Working capital is the amount of capital required by an organization to meet its day-to-day operating expenses. It represents the number of current assets that a company has to meet its short-term obligations. Working capital is calculated by subtracting current liabilities from Current assets.

For a budget hotel, the factors that should be taken into consideration when estimating its working capital needs include:

1. Occupancy rates: The higher the occupancy rates, the greater the working capital needs. This is because higher occupancy rates lead to higher operating expenses such as cleaning, laundry, and maintenance.
2. Seasonality: The working capital needs of a budget hotel will vary depending on the season. During peak seasons, the hotel will require more working capital to manage the increased demand.
3. Operating expenses: The working capital needs of a budget hotel will depend on its operating expenses. The hotel will need to ensure that it has sufficient working capital to cover its expenses, including wages, utilities, and supplies.
4. Credit policies: The hotel’s credit policies will also affect its working capital needs. If the hotel offers credit to its customers, it will need to have sufficient working capital to cover any outstanding debts.
5. Inventory management: Efficient inventory management is crucial for managing working capital. The hotel must ensure that it has sufficient inventory to meet the needs of its guests while minimizing excess inventory that can tie up working capital.

 

Q.3 Explain ratio analysis types with the help of a chart and its importance.

Ratio analysis is a commonly used tool for financial statement analysis. A ratio is a  mathematical relationship between one number to another number. The ratio is used as an index for evaluating the financial performance of the business concern. An accounting ratio shows the mathematical relationship between two figures, which have a meaningful relationship with each other.

A ratio can be classified into various types. Classification from the point of view of financial management is as follows:
● Liquidity Ratio
● Activity Ratio
● Solvency Ratio
● Profitability Ratio

Liquidity Ratio
It is also called the short-term ratio. This ratio helps to understand the liquidity in a business
which is the potential ability to meet current obligations. This ratio expresses the relationship
between current assets and current assets of the business concern during a particular
period. The following are the major liquidity ratio:

S. No.	Ratio	Formula	Significant Ratio
1.	Current Ratio	= Current Assets/CurrentLiability	2: 1
2.	Quick Ratio	= Quick Assets /Current Liability Quick Asset= Current Asset- Inventory	1: 1

Activity Ratio
It is also called the turnover ratio. This ratio measures the efficiency of the current assets
and liabilities in the business concern during a particular period. This ratio is helpful to
understand the performance of the business concern. Some of the activity ratios are given
below:

S. No.	Ratio	Formula
1.	Stock Turnover Ratio	Cost of Sales/Average Inventory
2.	Debtors Turnover Ratio	Credit Sales/AverageDebtors
3.	Creditors Turnover Ratio	Credit Purchase/Average credit
4.	Working Capital Turnover Ratio	Sales/Net working capital

 

Solvency Ratio
It is also called the leverage ratio, which measures the long-term obligation of the business
concern. This ratio helps to understand, how long-term funds are used in the business
concern. Some of the solvency ratios are given below:

S. No	Ratio	Formula
1.	Debt-Equity Ratio	External Equity/Internal Equity
2.	Proprietary Ratio	Shareholder Equity / Total Assets
3.	Interest Coverage Ratio	EBIT/Fixed Interest Charges

Profitability Ratio
The profitability ratio helps to measure the profitability position of the business concern. Some
of the major profitability ratios are given below.

S. No	Ratio	Formula
1.	Gross Profit Ratio	Gross Profit / Net Sales
2.	Net Profit Ratio	Net Profit after tax / Net Sales
3.	Operating Profit Ratio	Operating Net Profit / Sales
4.	Return in Investment	Net Profit after tax / Shareholder Fund

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OR Write short notes on:

(a) Over capitalisation:

Over-capitalization occurs when a company has raised more funds than it needs to operate efficiently. It means that the company’s capital base is larger than its actual requirements, resulting in the company having a lower return on investment. This situation arises when a company raises more capital than it can usefully employ, resulting in the underutilization of resources, low earnings, and poor dividends. The factors that can lead to overcapitalization include poor planning, overestimation of demand, underutilization of resources, and excessive borrowing.

(b) Indifference point:

The indifference point is a concept used in financial analysis to determine the level of sales at which two alternative investment options have the same net present value (NPV). It is the point at which a company can choose between two alternative investments that will produce the same return. For instance, a company can invest in either a machine that will increase production or hire more workers to increase productivity. The indifference point is calculated by dividing the fixed costs of each option by the difference in the variable costs per unit of output.

(c) Comparative and common size income statements:

Comparative income statements are financial statements that show a company’s financial performance over multiple periods, usually two or more years, side by side for easy comparison. It is a tool used by businesses to analyze the changes in the company’s performance over time. Comparative income statements allow companies to compare revenue, expenses, and profit margins across different periods to identify trends and make informed business decisions.

Common-size income statements are financial statements that express each line item as a percentage of total revenue. The statement helps companies understand the proportional relationship between each item on the income statement and the total revenue generated. Common-size income statements provide a simple way to compare the financial performance of different companies or the same company over different periods, making it easier for investors to identify trends and compare investment options.

Q.4. Write short notes on:

(i) Payback period:

The payback period is a financial metric used to measure the length of time required for a company to recoup its initial investment in a project or investment. It is calculated by dividing the initial investment by the annual cash inflow generated by the investment. The payback period indicates the risk involved in an investment by revealing the time it will take for the company to recover its investment. It is a popular metric for evaluating short-term investments, but it does not account for the time value of money or the overall profitability of the investment.

(ii) Cash flow statements:

A cash flow statement is a financial statement that reports the inflow and outflow of cash during a specific period. It is an essential tool for financial analysis, as it provides insight into a company’s liquidity, solvency, and overall financial health. Cash flow statements are divided into three categories: operating activities, investing activities, and financing activities. The statement is used to evaluate a company’s ability to generate cash, manage its cash flows, and meet its financial obligations. It is also used to identify potential cash flow issues that could impact a company’s financial stability.

(iii) Average rate of return:

The average rate of return is a financial metric used to measure the profitability of an investment over a specific period. It is calculated by dividing the total earnings generated by the investment by the total investment over the period. The average rate of return indicates the overall profitability of an investment and is used to compare the profitability of different investment options. It is a simple metric but does not account for the time value of money or the risk involved in an investment.

(iv) Profit maximisation:

Profit maximization is a financial strategy that seeks to maximize a company’s profit by identifying the level of output that generates the highest profit margin. The strategy involves evaluating the costs and revenue of different production levels to identify the most profitable output level. Profit maximization is a short-term strategy that focuses on immediate profits, but it does not account for the long-term sustainability of the business. It is a controversial strategy, as it can lead to unethical behavior and short-term thinking that can harm the company’s long-term success. As a result, many companies have shifted towards a more sustainable approach to profitability that balances short-term profits with long-term success.

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Q.5. Balance Sheet of the company as of 31.12.2010 is as follows:

Liabilities	2009	2010	Assets	2009	2010
Share capital	2,00,000/-	2,50,000/-	Fixed assets	3,50,000/-	4,75,000/-
Retained earnings	1,60,000/-	3,00,000/-	Stock	1,00,000/-	95,000/-
Premium on shares	–	5,000/-	Bills receivable	43,000/-	50,000/-
Accumulated depreciation	80,000/-	60,000/-	Pre-paid expenses	4,000/-	5,000/-
Debentures	60,000/-	–	Cash balance	15,800/-	10,200/-
Accounts payable	37,800/-	40,200/-	Commission on shares	25,000/-	20,000/-
TOTAL:	5,37,000/-	6,55,200/-		5,37,000/-	6,55,200/-

Additional information:

(i)  Net income for the year Rs.1,40,000/-

(ii)  Fixed assets purchases were made during the year at a cost of
Rs.1,65,000/- and fully depreciated machinery costing Rs.40,000/-

(iii)  Depreciation for the year Rs.20,000/-

(iv)  Income tax paid was Rs.40,000/-

You are required to prepare:
(a) A statement of schedule of changes in working capital

(b) Sources and application of funds

Preparing the schedule/statement of changes in working capital requires us to present the information relating to the current area of the balance sheets about the two periods in the format given below and deriving and presenting the changes within them.

 

Schedule/Statement of Changes in Working Capital for the period from 31/12/2009 to 31/12/2010
Particulars/Account	Balance as of 31st Dec		Working Capital Change
	2009	2010	Increase	Decrease
a) CURRENT ASSETS 1) Cash Balance 2) Bills Receivable 3) Stocks/Inventories 4) Prepaid Expenses 5) Commission on Share	. 15,800/- 43,000/- 100,000/- 4,000/- 25,000/-	. 10,200/- 50,000/- 95,000/- 5,000/- 20,000/-	. 7,000/- 1,000/-	. 5,600/- 5,000/- 5,000/-
TOTAL	187,800/-	180,200/-	8,000/-	15,600/-
b) CURRENT LIABILITIES 1) Accounts Payable 2) Premium on Share	. 37,800/- ———–	. 40,200/- 5,000/-		. 2,400/- 5,000/-
TOTAL	37,800/-	45,200/-		7,400/-
Working Capital [(a) – (b)]	150,000/-	135,000/-
TOTAL			8,000/-	30,400/-
Net Change in Working Capital			22,400/-

 

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Q.6. A project cost Rs.25,000/-. The net profits before depreciation and tax, and the tax rate of 20% for the five years. Following are the expected cash flows to be:

Year	1	2	3	4	5
Project	5,000/-	6,000/-	7,000/-	8,000/-	10,000

You are required to calculate the payback period.

Solution:

Year	Cash Inflow	Cumulative Cash Inflow
1	Rs. 5,000/-	Rs. 5,000/-
2	Rs. 6,000/-	Rs. 11,000/-
3	Rs. 7,000/-	Rs. 18,000/-
4	Rs. 8,000/-	Rs. 26,000/-
5	Rs. 10,000/-	Rs. 36,000/-

As we can see from the table, the cumulative cash inflow for the project is Rs. 26,000/- at the end of the fourth year, which is equal to the initial investment of Rs. 25,000/-. Therefore, the payback period for this project is four years.

The payback period is a useful metric for evaluating the time it takes to recover the initial investment in a project or investment. To calculate the payback period for this project, we need to determine the cumulative cash flow for each year and the year in which the initial investment is recovered.

The total cash inflow for the first year is Rs. 5,000/-. The cumulative cash inflow for the second year is Rs. 11,000/- (i.e., Rs. 5,000/- + Rs. 6,000/-). Similarly, the cumulative cash inflow for the third year is Rs. 18,000/- (i.e., Rs. 11,000/- + Rs. 7,000/-), and for the fourth year, it is Rs. 26,000/- (i.e., Rs. 18,000/- + Rs. 8,000/-). The initial investment of Rs. 25,000/- is recovered in the fourth year.

Q.7. From the following information, prepare a comparative balance sheet and give your interpretations:

Liabilities	Yr 2000 Amount in Rs.	Yr 2001 Amount in Rs.	Assets	Yr 2000 Amount in Rs.	Yr 2001 Amount in Rs.
Share Capital	5,00,000/-	8,00,000/-	Land & Building	4,30,000/-	3,70,000/-
Reserves and surplus	4,30,000/-	2,22,000/-	Plant	3,70,000/-	5,00,000/-
Debentures	1,00,000/-	2,00,000/-	Furniture	25,000/-	30,000/-
Loan	2,50,000/-	3,00,000/-	Other fixed assets	20,000/-	25,000/-
Bills payable	80,000/-	45,000/-	Cash and Bank	25,000/-	90,000/-
Sundry creditors	1,00,000/-	1,10,000/-	Bills receivable	1,45,000/-	80,000/-
Current liabilities	6,000/-	20,000/-	Sundry debtors	2,50,000/-	3,50,000/-
			Stock	2,00,000/-	2,50,000/-
			Pre-paid expenses	1,000/-	2,000/-
TOTAL:	14,66,000/-	16,97,000/-	TOTAL:	14,66,000/-	16,97,000/-

Solution:

	2000 Amount (Rs.)	2001 Amount (Rs.)	Change in Absolute Value (Rs.)	Change in Percentages
Share Capital	5,00,000	8,00,000	3,00,000	60%
Reserves and surplus	4,30,000	2,22,000	-2,08,000	-48%
Debentures	1,00,000	2,00,000	1,00,000	100%
Loan	2,50,000	3,00,000	50,000	20%
Bills payable	80,000	45,000	-35,000	-44%
Sundry creditors	1,00,000	1,10,000	10,000	10%
Current liabilities	6,000	20,000	14,000	233%
Stock	2,00,000	2,50,000	50,000	25%
Pre-paid expenses	1,000	2,000	1,000	100%
Land & Building	4,30,000	3,70,000	-60,000	-14%
Plant	3,70,000	5,00,000	1,30,000	35%
Furniture	25,000	30,000	5,000	20%
Other fixed assets	20,000	25,000	5,000	25%
Cash and Bank	25,000	90,000	65,000	260%
Bills receivable	1,45,000	80,000	-65,000	-45%
Sundry debtors	2,50,000	3,50,000	1,00,000	40%

The change in percentages column shows the percentage increase or decrease in each account from 2000 to 2001.

To prepare the comparative balance sheet, we first compared the amounts of different items in the balance sheet for the years 2000 and 2001. We then calculated the absolute change and percentage change in each item from 2000 to 2001.

The formula used for absolute change is:

Absolute Change = Amount in 2001 – Amount in 2000

The formula used for percentage change is:

Percentage Change = (Absolute Change / Amount in 2000) x 100

To calculate the total change in the balance sheet, we summed up the absolute change and percentage change for each item. This allowed us to interpret the changes in the financial position of the company over the two years.

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Q.8. A company has to choose one of the following two mutually exclusive projects A&B. Project A requires Rs.20,000/- and Project B requires Rs.15,00an an 0/- as initial investmenfirm’se firm’s cost of capital is 10%. Suggest which project should be accepted under NPV method. Following are the net cash flows:

Year	1	2	3	4	5
Project A	4200	4800	7000	8000	4000
Project B	4200	4500	4000	5000	4000

 

Year 1	Year 2	Year 3	Year 4	Year 5
0.909	0.826	0.751	0.683	0.621

Calculate: net present value
Present value Rs.1/- @ 10% (discount factor) using present value tables

For Project A

Initial Investment = Rs 20,000/-

Year	Discount Factor	Return	Net Present Value
1	0.909	4,200	3817.8
2	0.826	4,800	3964.8
3	0.751	7,000	5257
4	0.683	8,000	5464
5	0.621	4,000	2484
Total		28,000	20987.6

Present Value of Return= 20,987.6/-

Return on Investment = (20,987.6 – 20,000) / 20,000

= 0.04938

= 4%

For Project B

Initial Investment = Rs. 15,000/-

Year	Discount Factor	Return	Net Present Value
1	0.909	4,200	3817.8
2	0.826	4,500	3717
3	0.751	4,000	3004
4	0.683	5,000	3415
5	0.621	4,000	2484
Total		21,700	16437.8

Present Value of Return = 16,437.8/-

Return on Investment = (16,437.8 – 15,000) / 15,000

= 0.0958

= 9. the 58%

So, the project should be accepted d under NPVand  method will be

1st – Projectit’s(As it’s giving 9.58% ROI)

 

Q.9. Tyre manufacturing company has drawn up the following profit and loss account for the year ended:

Calculate:

• (a) Gross Profit Ratio
• (b) Net Profit Ratio
• (c) Operating Ratio
• (d)Operating Profit Ratio

Operating Ratio Operating Profit Ratio

Particulars	Rs.	Particulars	Rs.
To opening stock	26,000/-	By Sales	1,60,000/-
To purchases	80,000/-	By Closing Stock	38,000/-
To wages	24,000/-
To manufacturing expenses	16,000/-
To gross profit c/d	52,000/-
	1,98,000/-		1,98,000/-
To selling & distribution expenses	4,000/-	By gross profit b/d	52,000/-
To administrative expenses	22,800/-	By commission received	4,800/-
To value of furniture lost by fire	800/-
To general expenses	1,200/-
To net profit c/d	28,000/-
	56,800/-		56,800/-

From the Question, we have
Net Profit = 28,000/-

Gross Profit = 52,000/-

Net Sales = 160,000/-

Operating Expense = 4,000 + 22,800 + 800 + 1,200 = 28,800/-

Operating Profit aka EBIT  = Gross Profit – Operating Expense = 52,000 – 28,800 = 23,200/-

Now,

Gross Profit Ratio = Gross Profit / Net Sales

= 52,000 / 160,000 = 13:80 = 0.1625 = 16.25%

Net Profit Ratio = Net Profit after tax / Net Sale

= 28,000 / 160,000 = 0.175 = 17.5%

Operating Ratio = Operating Expenses / Net Sales

= 28,800 / 160,000 = 0.18 = 18%

Operating Profit Ratio = Operating Profit / Net Sale

= 23,200 / 160,000 = 0.145 = 14.5%

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Q.10. Fill in the blanks:

(a) Expenditure incurred on research is an example of
_____________________. (Deferred revenue expenditure/partly capital
expenditure.

(a) Expenditure incurred on research is an example of partly capital expenditure: This statement is true because research expenditure is partly a revenue expenditure and partly a capital expenditure. The expenditure on research has benefits for the company in the long term, such as new product development or improving existing products, which can result in increased profitability in the future. Therefore, a portion of research expenditure can be capitalized as it is a long-term investment, and the remaining portion can be treated as revenue expenditure.

(b) Capital structure means the pattern of __________ in the firm (capital
employed/dividend).

(b) Capital structure means the pattern of capital employed in the firm: This statement is true because capital structure refers to the way a company finances its operations and investments through the use of different sources of funds, such as equity, debt, and retained earnings. The pattern of capital employed in the firm refers to the proportion of these sources of funds in the company’s overall capital structure.

(c) Capital budgeting is related to __________ (sales/capital expenditure).

(c) Capital budgeting is related to capital expenditure: This statement is true because capital budgeting involves the process of planning, evaluating, and selecting long-term investment projects that require significant capital expenditures. The purpose of capital budgeting is to determine the viability of the investment projects, the expected returns, and the risks associated with them.

(d) Quick assets = current assets (minus) __________ (debtors/stock).

(d) Quick assets = current assets minus debtors: This statement is true because quick assets refer to assets that can be easily converted into cash, such as cash and cash equivalents, marketable securities, and accounts receivable (excluding debtors). Debtors are not considered quick assets because they may not be easily converted into cash.

(e) Depreciation means reduction in the value of __________ due to usage and efflux of time (current assets/fixed assets).

(e) Depreciation means reduction in the value of fixed assets due to usage and efflux of time: This statement is true because depreciation is a method of allocating the cost of a fixed asset over its useful life. The reduction in the value of the asset is due to wear and tear, obsolescence, and the passage of time. As the asset is used or becomes outdated, its value decreases, and this decrease is accounted for as depreciation.