Tag: sources of business finance - 1

Questions Related to sources of business finance - 1

State the following statement is True or False:
A letter sent to the applicant to whom shares are not allotted is known as Letter of Allotment.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. True

  2. False

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Correct Option: A
Explanation:

A letter sent to the applicant to whom shares are not allotted is known as Letter of Allotment- this is a true statement. The letter of allotment is mainly useful to the buyer. It contains the details regarding the purchase or sell of the shares.

Shareholders are the owners of a company.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. True

  2. False

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Correct Option: A
Explanation:
A shareholder, commonly referred to as a stockholder, is any person, company, or institution that owns at least one share of a company’s stock. Because shareholders are a company's owners, they reap the benefits of the company's successes in the form of increased stock valuation. If the company does poorly and the price of its stock declines, however, shareholders can lose money.
Although they are owners of the company, shareholders do not manage operations.  A board of directors is appointed to govern the activities and operations of the company.

Public investment in a company is generally in the form of:

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Shares

  2. Debentures

  3. Deposits

  4. Any of the above

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Correct Option: D
Explanation:

The process of estimating the fund requirements for a business and specifying the sources of funds is called the financial management for a business. The main sources of funds available to a business are shareholder funds and borrowed funds. The public investment in a company can be done by accumulating capital through equity issue to the public or borrowed funds by issuing debentures and public deposits.

State the following statement is True or False:
A minimum amount of capital to be collected by company at initial stages is minimum subscription.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. True

  2. False

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Correct Option: A
Explanation:

A minimum amount of capital to be collected by company at initial stages is minimum subscription- this is a true statement. The minimum shares the company needs to get from the public out of the total issue by the date of closure is known as minimum subscription.

Classification on on the basis of ownership basis includes ___________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Owner's funds

  2. Borrowed funds

  3. Loan funds

  4. All of the above

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Correct Option: D
Explanation:

The classification of funds on the basis of ownership of funds raised by a business or a company are: 

Owner's Funds: The funds raised by the owner of the company or business are known as owner's funds
Borrowed Funds: The funds raised by borrowing from the public or investors are known as borrowed funds.
Loan Funds: The funds that are raised on the basis of a loan taken from the bank, government or investors are known as loan funds.

The sources of funds can be categorized on the basis of _______________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Time period

  2. Ownership

  3. Source of generation

  4. All of the above

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Correct Option: D
Explanation:

The sources of funds can be categorized on the basis of:

Time period for which the funds are borrowed.
Ownership of the funds that are raised can be public or investors or shareholders.
The sources of funds are the category by which the funds are raised largely categorized into two i.e shareholders funds and borrowed funds.

Medium-term sources of finance include __________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Loans from financial institutions

  2. Lease financing

  3. Public deposits

  4. All of the above

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Correct Option: D
Explanation:

Medium-term sources of funds are usually for a period of more than one year but not exceeding five years in duration. These finances include, loan from commercial banks or financial institutions, lease financing, public deposits, etc.

Short-term financing is most common for financing of ____________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Fictitious assets

  2. Current assets

  3. Fixed assets

  4. All of the above

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Correct Option: B
Explanation:

Every business needs to invest into in current assets. These assets are also known as working capital to facilitate smooth working of day-to-day activities. Short term financing  is raised to cope up with these day-to-day activites to run a business and has to be repaid within a year's time.

Sources that provide funds for a short duration are called ______________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Trade credit

  2. Loans from commercial banks

  3. Commercial papers

  4. All of the above

Show answer
Correct Option: D
Explanation:

Sources of funds that provide funds for a duration of less than one year are:

Trade Credits: These are the credits granted to manufacturers and traders by the suppliers of raw materials.
Loans from commercial banks: Commercial banks grant short-term finance to business firms which is known as bank credit
Commercial papers:Commercial paper is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations  

 The funds required for a period of less than one year are called ___________.

elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

  1. Long-term finance

  2. Medium-term finance

  3. Short-term finance

  4. All of the above

Show answer
Correct Option: C
Explanation:

The funds that are borrowed for less than a year's period of time are known as short-term finances. Some of the sources of short term finances are trade credits, bank credits, customer's advances, cash credit, overdrafts, etc.