Free Credit Risk Management Trivia Questions and Answers — Questions and Answers
Question 1: The Companies (Auditor's Report) Order, 2016 ("the order") contains how many clauses?
- 21
- 12
- 16 (Correct answer)
- 15
Correct answer: 16
Explanation: <br> The Companies (Auditor's Report) Order, 2016, commonly known as the CARO 2016, consists of 16 clauses. These clauses specify the requirements and matters to be included in the auditor's report for companies in India. The order aims to enhance the quality and transparency of financial reporting and auditing practices for companies.
Question 2: What is the total amount of long-term funds that are supporting the financing of current assets if the total amount of current assets is Rs. 168 lakh and the total amount of current liabilities is Rs. 142.68 lakh?
- Rs. 24.32 lakh
- Rs. 26.32 lakh
- Can't be calculated from the given information
- Rs. 25.32 lakh (Correct answer)
Correct answer: Rs. 25.32 lakh
Explanation: <br> To determine the amount of long-term funds supporting the financing of current assets, you can use the formula: <br> <br> Long-term funds = Total current assets - Total current liabilities <br> <br> In this case, the total of current assets is Rs. 168 lakh, and the total of current liabilities is Rs. 142.68 lakh. By subtracting the total current liabilities from the total current assets, we can find the number of long-term funds supporting the financing of current assets: <br> <br> Long-term funds = Rs. 168 lakh - Rs. 142.68 lakh = Rs. 25.32 lakh <br> <br> Therefore, the amount of long-term funds supporting the financing of current assets is Rs. 25.32 lakh.
Question 3: How is Net Working Capital (NWC) determined?
- Any of the above (Correct answer)
- Total Current Assets - Total Current Liabilities
- (Net Worth + Term Liabilities) - (Total Assets -current assets)
- Long Term Sources - Long Term uses
Correct answer: Any of the above
Net Working Capital can be derived several ways that all yield the same figure: Total Current Assets minus Total Current Liabilities, (Net Worth + Term Liabilities) minus (Total Assets − Current Assets), and Long Term Sources minus Long Term Uses. Because each formula is valid, "Any of the above" is correct.
Question 4: What category should the outstanding balance in the balance sheet's preliminary or pre-operative expenses be assigned?
- Non-Current Assets
- Current Assets
- Intangible Assets (Correct answer)
- Fixed Assets
Correct answer: Intangible Assets
Explanation: <br> Intangible assets are non-physical assets that lack a physical substance but have value and are identifiable. These assets are not held for sale in the normal course of business but are used to generate future benefits for the company.
Question 5: The management is in charge of preparing the financial statements. What duties fall under the purview of the Independent/Statutory Auditors?
- All the above (Correct answer)
- To express an opinion on the financial statement
- Assurance for True and Fair representation of financial statements
- Comments on the compliance of the various Acts, Accounting Standards etc.
Correct answer: All the above
Independent/statutory auditors are responsible for all the listed duties: expressing an opinion on the financial statements, providing assurance that they give a true and fair view, and commenting on compliance with applicable Acts and Accounting Standards. Management prepares the statements, while the auditor independently examines and reports on them, so "All the above" is correct.
Question 6: What could be the causes of a decrease in net working capital?
- Conversion of current assets into non-current assets
- All of the above (Correct answer)
- Use of short term funds for long term purposes
- Losses in business
Correct answer: All of the above
Net working capital can fall for all the listed reasons: converting current assets into non-current assets reduces current assets, using short-term funds for long-term purposes ties up liquidity, and business losses erode working capital. Since each scenario decreases NWC, "All of the above" is correct.
Question 7: The Tandon Committee recommended three lending techniques. What will the current ratio be for the second financing method?
- It depends on case to case basis
- 1.28
- More than 1.33
- 1.33 (Correct answer)
Correct answer: 1.33
Under the Tandon Committee's second method of lending, the borrower finances 25% of current assets from long-term sources, which produces a minimum current ratio of 1.33. The other choices misstate this benchmark—it is a fixed standard, not case-by-case, and not 1.28 or above 1.33.
Free Credit Risk Management Trivia Questions and Answers
The Companies (Auditor's Report) Order, 2016 ("the order") contains how many clauses?