ACCOUNTING & FINANCE INTERVIEW QUESTIONS ( 221 - 230)

221.Fixed Assets Turnover Ratio : This ratio indicates the extent to which the investments in fixed assets contributes towards sales.

          Formula :             Net Sales           

                                        Fixed Assets

222 Pay-out Ratio : This ratio indicates what proportion of earning per share has been used for paying dividend.

         Formula :   Dividend per Equity Share     X 100

                                  Earning per Equity share                  

223 Overall Profitability Ratio : It is also called as “ Return on Investment” (ROI) or Return on Capital Employed  (ROCE) . It indicates the percentage of return on the total capital employed in the business.

               Formula :       Operating profit       X 100

                                         Capital employed

      The term capital employed has been given different meanings

a.     sum total of all assets whether fixed or current

b.     sum total of fixed assets,

c.      sum total of long-term funds employed in the business, i.e.,

share capital +reserves &surplus +long term loans –(non business assets + fictitious assets).

Operating profit means ‘profit before interest and tax’

224   Fixed Interest Cover Ratio : the ratio is very important from the lender’s point of view.  It  indicates whether the business would earn sufficient profits to pay periodically the interest charges.

                     Formula :    Income before interest and Tax 

                                                      Interest Charges

225 . Fixed Dividend Cover Ratio :  This ratio is important for preference shareholders entitled to get dividend at a fixed rate in priority to other shareholders.

                    Formula :     Net Profit after Interest and Tax 

                                                   Preference Dividend

226. Debt Service Coverage Ratio : This ratio is explained ability of a company to make payment of principal amounts also on time.

                 Formula :     Net profit before interest and tax

                                        Interest + Principal payment installment  

1-    Tax rate

227 Proprietary Ratio : It is a variant of debt-equity ratio . It establishes relationship between the proprietor’s funds and the total tangible assets.

                  Formula :     Shareholders funds

                                          Total tangible assets

228 Difference Between Joint Venture and Partner Ship :

Ø In joint venture the business is carried on without using a firm name,

In the partnership, the business  is carried on under a firm name.

Ø In the joint venture, the business transactions are recorded under cash system

      In the partnership, the business transactions are recorded under mercantile    system.

Ø In the joint venture, profit and loss is ascertained on completion of the venture

       In the partner ship , profit and loss is ascertained at the end of each year.

Ø In the joint venture, it is confined to a particular operation and it is temporary.

      In the partnership, it is confined to a particular operation and it is permanent

.

229 Meaning of Working capital

:

        The funds available for conducting day to day operations of an enterprise. Also    represented by the excess of current assets over current liabilities .

230 Concepts of Accounting :

1.     Business entity concepts :- According to this concept, the business is treated as a separate entity distinct from its owners and others.

2.     Going concern concept :- According to this concept, it is assumed that a business has a reasonable expectation of continuing business at a profit for an indefinite period of time.

3.     Money measurement concept :- This concept says that the accounting records only those transactions which can be expressed in terms of money only.

4.     Cost concept :-According to this concept, an asset is recorded in the books at the price paid to acquire it and that this cost is the basis for all subsequent accounting for the asset.

5.     Dual aspect concept :- In every transaction, there will be two aspects – the receiving aspect and the giving aspect; both are recorded by debiting one accounts and crediting another account. This is called double entry.

6.     Accounting period concept :- It means the final accounts must be prepared on a periodic basis. Normally accounting period adopted is one year, more than this period reduces the utility of accounting data.

7.     Realization concept :- According to this concepts, revenue is considered as being earned on the data which it is realized, i.e., the date when the property in goods passes the buyer and he become  legally liable to pay.

8.     Materiality concepts :- It is a one of the accounting principle, as per only important information will be taken, and un important information will be ignored in the preparation of the financial statement.

9.     Matching concepts :- The cost or expenses of a business of a particular period are compared with the revenue of the period in order to ascertain the net profit and loss.

10.                        Accrual concept :- The profit arises only when there is an increase in owners capital, which is a result of excess of revenue over expenses and loss.