Explore topic-wise InterviewSolutions in Current Affairs.

Correct option is (C) 2: 1

Cost of goods sold is determined as follows :

• Cost of goods sold = Sale – Gross profit OR sales + Gross loss
• Cost of goods sold = Wages + Factory expenses + Cost of goods consumed.

Ratios are useful when they are compared with any standards, e.g. Ratios compared with ratios developed by the business entity, comparisons with ratios of industry and competitors etc.

Ratios can be presented in the following ways.

• In terms of proportion
• In terms of percentage
• In terms of times
• In terms of fraction
• In terms of days/weeks/months.

Correct option is (D) Liquid ratio

Correct option is (D) All of the above

Correct option is (D) Both (B) and (C)

Individual ratio does not indicate any type of favourable or unfavourable situation. For making analysis of financial statements more useful and meaningful comparison of ratio analysis is included in it. Individual ratio present only result but when computed ratio copmpared with any standards or with certified ratio then it is useful, i.e. current ratio of net profit is 25%, which gives only result, but in last year it was 20% and in current year it is 25% then we can compare it and get conclusion from it.

Main three limitations of ratio analysis can be as under :

1. Absence of standard ratios: Any individual ratio does not provide any analysis or interpretation. The use of ratios can be established only when the standard ratios are available for comparison. If standard ratios are not determined, the computed ratios become useless.

2. Influence of price changes: The base for ratio analysis is financial statement. Financial statements are prepared with historical information and in historical information the effect inflation is not considered which is also a limitation.

3. Difficulty in comparison: When two same category, business entities, follow different accounting policies, then information obtained by ratio analysis becomes useless, e.g. method of depreciation, method of stock valuation etc.

4. Limited Utility: The utility of ratios calculated on the basis of only one year is limited For the comparison the figures of the previous year and those of the current year is not much useful. If possible the figures of the firm ought to be compared with those of a firm similar business.

5. Factors Neglected: It is obvious that a business is affected by external and internal factors, competition and total economic condition of the country. But these factors are not included in the calculation of ratios. Since they are calculated on the past figures, they have limited utility.

It is said so as it is needed in all spheres say, business and non-business organisations.

A ten-rupee note has “Reserve Bank of India” written on the top, followed by a statement “Guaranteed by the Central Government”. It is a promissory note and can only be issued by the Reserve Bank of India which supervises all moneyrelated functions in the formal sector in India. The statement on the ten rupee note relates to this idea that the RBI is the central organ in the working of moneyrelated activities.

(i) Banks keep only a small proportion of their deposits as cash with themselves, as a provision to pay the depositors who might come to withdraw from the bank on any given day. 

(ii) They use their major portion of the deposits to extend loans, mediate between those people who have surplus funds (depositors) and those who are in need of those funds (the borrowers). 

(iii) They charge higher rate of interest on the loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.

They deposit it with the banks by opening a bank account in their name.

Demand deposit constitute money in modern economy as they are accepted widely as a means of payment along with currency.

Their major source of revenue is the difference between what is charged from borrowers and what is paid to depositors.

Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits.

Commercial banks play a very important role in the process of credit creation. Banks use a major portion of their deposits for further credit creation. The process of credit creation begins with banks’ lending money out of deposits that are accepted from the people. But banks cannot lend the entire deposits as they are required to maintain a certain proportion of primary deposits in the form of reserves with the RBI under RBI & Banking Regulation Act. That reserve which is maintained with RBI is known as cash reserve ratio. After maintaining the required reserves, the bank can lend the remaining portion of deposits.

Credit refers to an agreement in which the lender supplies the borrowers with money, goods and services in return for the promise of future payments. 

Importance of credit 

(i) In some situation, credit helps to increase earnings and therefore the person is better off than before. 

(ii) We can understand it with an example. Salim obtains credit to meet the working capital needs of production. The credit helps him to meet the ongoing expenses of production, complete production on time and thereby increase his earnings. Thus, credit plays a rival and positive role in this situation.

People deposit extra cash with the bank by opening a bank account in their name. Banks accept the deposits and also pay an amount as interest on the deposits. In this way people’s money is safe with the banks and it earns an amount of interest. People also have the provision to withdraw the money as and when they require. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits.

Correct option is (c) Debtor

A cheque is a paper instructing the bank to pay a specific amount from a person’s account to the person in whose name the cheque has been issued. The payer, who has an account with the bank, makes out a cheque for a specific amount. The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash.

Correct option is (b) Creditor

Balance of Payments refers to the statement of accounts recording all economic transactions of a country with the rest of the world in an accounting year.

When foreign exchange receipts in the current account fall short of foreign exchange payments, it is called Current Account Deficit.

Trade deficit means excess import of goods and services over exports of goods.

BOP deficit occurs when autonomous foreign exchange receipts fall short of autonomous payment. Autonomous transaction are the transaction not influenced by other transactions in BOP.

Deficit in the BOP occurs when autonomous foreign exchange receipts fall short of autonomous foreign exchange payments. Autonomous transactions the transaction not influenced by other transactions in the BOP.

They may be disequilibrium in BOP but in according sense, it is always balanced.

It is a trade between countries.

Autonomous transactions refer to international economic transactions in the current and capital account that are undertaken for profit.

These refers to one sided transfers from one country to other. These are not trading transactions.

Correct Answer is : b) difficult

Resident includes individuals, business unit, Government and their agencies. 

With the help of international loans.

b) independently

Invisible items are all those type of services which are exported and imported.

It is the difference between monetary value of exports and imports of material goods or visible items.

On the basis of change in assets and liabilities of the govt. in relation to other countries.

The capital account of the balance of payment records all the transactions, between the residents of a country and the rest of the world, which cause a change in all assets or liabilities of the residents of the country or its government.

The visible items are all those types of physical goods which are exported and imported.

A balance of payment is a statement of double entry system of all economic transactions between residents of a country and the residents of foreign countries during a given period of time.

Current account and Capital account.

The two alternative names of the balance of trade are:

• Balance of visible trade
• Trade balance

The current account refers to the account which records all the transactions relating to export and import of goods, services, and unilateral transfers during a given period of time.

Exports of goods and imports of goods.

When the value of exports of goods is greater than the value of import of goods, it is called Surplus Balance of Trade.

When exports of visible items are more than imports of visible items.

When the value of imports is more than value of exports.

(i) Foreign investment 

(ii) Loans