AS 03 Finance & Economics for Actuarial Mock Test 02
These questions cover key concepts in corporate finance, financial management, accounting, and economics relevant to actuarial studies. Topics include share capital vs. debenture capital, cumulative preference shares, floating charges, leverage, long-term borrowings, debt financing, and corporate taxation. The set also tests understanding of balance sheet fundamentals, equilibrium price and output, demand-pull inflation, structural unemployment, and the tax impact on financing decisions. Learners are expected to understand capital structure, financing sources, market equilibrium, macroeconomic principles, and accounting equations, providing a solid foundation for AS 03 Finance & Economics for Actuarial examinations.
1. What is the key difference between Share Capital and Debenture Capital regarding tax treatment?
A. Share capital is tax deductible; debentures are not
B. Both are tax deductible
C. Neither is tax deductible
D. Debenture interest is tax deductible (an allowable expenditure under Income Tax Act); dividend on shares is NOT tax deductible in company's hand
E. Both require SEBI approval for tax benefits
2. What is a Cumulative Preference Share?
A. Shares that accumulate voting rights over time
B. Shares where unpaid dividends from previous years carry forward — these shares have right to claim dividend for those years also for which there were no profits
C. Shares that increase in face value each year
D. Shares that must be redeemed within 5 years
E. Shares that convert to debentures after maturity
3. How does a growing economy contribute to demand-pull inflation?
A. It reduces government spending
B. It decreases consumer confidence
C. People feel confident, spend more, creating expectations of further inflation and making purchases sooner to avoid future price increases
D. It reduces aggregate supply
E. It lowers wages and reduces consumer purchasing power
4. The basic balance sheet equation is:
A. Revenue - Expenses = Profit
B. Assets - Liabilities = Shareholders' Equity
C. Liabilities = Assets - Capital
D. Assets = Liabilities + Shareholders' Equity
E. Capital + Profit = Assets
5. What is a Floating Charge in the context of debentures?
A. A charge on fixed assets like buildings
B. An equitable charge on the company's assets both present and future in the ordinary course of business
C. A charge that requires fresh consent for every asset sale
D. A charge only applicable to intellectual property
E. A government-mandated charge on secured loans
6. How is Leverage generally defined?
A. The ratio of percentage change in profits to the percentage change in sales — it is the multiplying effect that fixed costs have on profits when there is any change in sales
B. The ratio of total debt to total equity
C. The ratio of fixed assets to current assets
D. The ratio of interest paid to profits
E. The ratio of variable costs to fixed costs
7. Long-term borrowings include which of the following?
A. Trade payables and short-term bank overdrafts
B. Current portion of long-term borrowings that must be repaid within one year
C. Amounts due to suppliers within 12 months
D. Finance leases, medium-term bank loans, long-term unsecured loan stock, debentures etc., shown at nominal (or par) value
E. Short-term commercial paper and treasury bills
8. What is Structural Unemployment?
A. Unemployment arising from workers moving between jobs
B. Unemployment that occurs when workers are not qualified for the available jobs, often requiring retraining
C. Unemployment linked to economic recessions
D. Unemployment caused by high inflation
E. Short-term unemployment while searching for jobs
9. In calculating the costs of individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?
A. Common stock (equity)
B. Preferred stock
C. None of the above
D. Both common stock and preferred stock
E. Debt
10. What is Equilibrium Price and Output?
A. The price set by the government for essential commodities
B. The price at which firms maximise profit
C. The price at which firms stop producing
D. It is a market condition when quantity demanded and quantities supplied are equal; the price no longer fluctuates and buyers can purchase their desired quantity without paying extra
E. A fixed price determined by international markets
