Explore topic-wise InterviewSolutions in Current Affairs.

Direct Competition: It refers to the competitions in which various enterprises producing close substitutes try to increase their sale of their product. Each tries to enhance its sale and tries to capture maximum possible consumers of the market e.g. Luxor, Flair, Camlin etc. are the companies which produce substitutes and each tries to capture maximum consumers of pen and other stationery items. Indirect Competition: It is a type of competition in which the enterprises compete not only for price but other references about the product. It is also referred as non price competition, e.g. Coca-Cola and Pepsi compete with each other in advertisements for persuading the customers. Any new advertisement of one company is normally followed by a fresh advertisement by another company.

1. Merger through Absorption 

2. Meaning: An absorption is a combination of two or more companies into an ‘existing company’. All companies except one lose their identity in such a merger.

The acquirer firm may decide to acquire the target through cash. To pay the price of acquisition, the acquirer may borrow heavily from the market. This creates a very high leveraged structure and increases the interest burden of the company. This increased interest cost may consume a big portion of the earnings and may lead to failure of the purpose of acquisition.

1. Moving-up the value chain is a value chain in the whole series of activities that create and build value at every step. The total value delivered by the company is the sum total of the value built up gradually all throughout the company. 

2. It is the primary and secondary facilitations offered by a company. Low facilitation to highest facilitation by a company then leads to movement from low level to highest level. For example, in a steel industry, if they make specialized steel for automobiles, rather than selling basic steel, which is taken by another company who makes specialized steels to automobiles. Since the company makes it directly now, they get more money for their product, and thus higher revenues. This will eventually lead to higher profits. The value chain concept separates useful from the wasteful activities which hinder the company from becoming a leader in the market. Focusing on the value-creating activities gives the company many advantages. It involves primary activities like Inbound logistics, Operations, Outbound logistics, Marketing, sales, Services, etc. and Support activities like Procurement, Technological development, Human resource management etc. Value chain management requires coordination and collaboration, Technology investment, Organizational process, Leadership, Employee/ Human resources and Organizational culture and attitudes. For example: The ability to charge higher prices; lower cost of manufacture; better brand image, faster response to threats or opportunities. 

Outsourcing: The fragmentation of the production process across various countries has given rise to restructuring in firms including the outsourcing and off shoring of certain functions. Outsourcing involves the purchase of intermediate goods and services from outside specialist providers, while off shoring refers to purchases by firms of intermediate goods and services from foreign providers, or to the transfer of particular tasks within the firm to a foreign location. Off shoring includes both international outsourcing where activities are contracted out to third parties abroad and international in-sourcing to foreign affiliates.

The term merger depends on the:

1. economic function

2. purpose of the business transaction

3. and relationship between the merging companies.

1. Merger through Consolidation/ Amalgamation

2. Meaning:  A consolidation is a combination of two or more companies into a ‘new company’. In this form of merger, all companies are legally dissolved and a new entity is created. Here, the acquired company transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares.

A merger is involved with job losses, restructuring and the imposition of a new corporate culture and identity. This may create uncertainty, anxiety and resentment among the company’s employees. Companies often pay less attention to the short term legal and financial considerations involved in a merger and neglect crucial HR issues related to corporate identity and communication. This in turn affects the worker’s morale and productivity.

Merger requires legal approvals and has to follow a legal procedure. If any of the stakeholders are not in favour of the merger, they might create legal obstacles and slow down the entire process. This results in regulatory delays and increases the risk of deterioration for the business. So care has to be taken to ensure that regulatory hurdles and problems do not crop up, else it may lead to failure.

Following are the six requirements for value chain management:

1. Coordination and collaboration: It is essential to increase efficiency within an organization. Care should be taken that efforts are not duplicated. Firm is greater than the sum of its parts for achieving a common goal of the firm. 

2. Technology investment: With outdated technology, like old computers or machinery, an organization’s competitiveness is weakened due to a loss in productivity. This devoids the firm from gaining advantage. 

3. Organisational process: Improvement in processes through better technology and greater procedural knowledge is essential for the present and future success of a company. Continuity is to be maintained for the improvement and is to be made an integral part of the system. 

4. Leadership: Strong leaders adds to the successions value chain management. Good leaders earn the respect of their employees through neutral, effective and sound management practices. Conflict management, motivation and direction are the essential requirements of strong leaders. 

5. Employee/human resources: Without a knowledgeable and active human resources department, employees may feel they don’t have a voice within the company and this may lead to lack in belongingness from the employees. Also, an employee hesitant to go directly to the ultimate superiors with issues act as a hurdle in many situations. 

6. Organisational culture and attitudes: Organisations that foster strong cultural identity with positive attitudes tend to attract and retain top employees. Regular sponsored activities are suggested to help build cultural unity and keep attitudes positive while boosting productivity of the firm.

A balance sheet is a part of the final accounts. However, the balance sheet is a statement and not an account. It has no debit or credit sides and as such the words ‘To’ and ‘By’ are not used before the names of the accounts shown therein.

It means the failure to record a transaction in the journal or subsidiary book or failure to post both the aspects in ledger. This error affects two or more accounts

1. If the amount of sales exceeds the cost of goods sold, the difference is gross profit.

Sales – Cost of goods sold = Gross profit. 

2. If the total of the credit side of the profit and loss account exceeds the debit side, the difference is termed as net profit.

(a) Purchases returns book was undercast by Rs. 100

It means the mistake committed in the application of fundamental accounting principles in recording a transaction in the books of accounts.

Fixed assets are those assets which are acquired or constructed for continued use in the business and last for many years such as land and building, plant and machinery, motor vehicles, furniture, etc.

The correct answer is : (d) Final

Financial Analysis has great importance to various accounting users on various matters. Income Statements, Balance Sheets and other financial data provide information about expenses and sources of income, profit or loss and also helps in assessing the financial position of a business. These financial data are not useful until they are analysed. There are various tools and methods such as Ratio Analysis, Cash Flow Statements that make the financial data to cater varying needs of various accounting users. 

The following are the reasons that advocate in favour of Financial Analysis:

• It helps in evaluating the profit earning capacity and financial feasibility of a business. 

• It helps in assessing the long-term solvency of the business. 

• It helps in evaluating the relative financial status of a firm in comparison to other competitive firms. 

• It assists management in decision making process, drafting various plans and also in establishing an effective controlling system.

Financial Analysis has great importance to various accounting users on various matters. Income Statements, Balance Sheets and other financial data‘provide information about expenses and sources of income, profit or loss and also helps in assessing the financial position of a business. These financial data are not useful until they are analysed. There are various tools and methods such as Ratio Analysis, Cash Flow Statements that make the financial data to cater varying needs of various accounting users. 

The following are the reasons that advocate in favour of Financial Analysis 

(i) It helps in evaluating the profit earning capacity and financial feasibility of a business. 

(ii) It helps in assessing the long-term solvency of the business. 

(iii) It helps in evaluating the relative financial status of a firm in comparison to other competitive firms. 

(iv) It assists management in decision making process, drafting various plans and also in establishing an effective controlling system.

Analysis and Interpretation refers to a systematic and critical examination of the financial statements. It not only establishes cause and e Tect relationship among the various items of the financial statements but also presents the financial data in a proper manner. The main purpose of Analysis and Interpretation is to present the financial data in such a manner that is easily understandable and self-explanatory. This not only helps the accounting users to assess the fi nancial performance of the business over a period of time but also enables them in decision making and policy and financial designing process. 

Bring out the importance of Financial Analysis The following are the importance of Financial Analysis:

• It helps in evaluating the profit earning capacity and financial feasibility of a business. 

• It helps in assessing the long-term solvency of the business. 

• It helps in evaluating the relative financial status of a firm in comparison to other competitive firms. 

• It assists management in decision making process, drafting various plans and also in establishing an effective controlling system.

The nature of financial statement is historical. Past cannot be the index of future and cannot be cent percent basis for future estimation, forecasting, budgeting and planning.

Following are the steps to be followed in preparation of comparative statement.

(i). Column 1 : In this column, particulars of items of income statements or balance sheet are written. 

(ii). Column 2 : Enter absolute amount of year 1. 

(iii). Column 3 : Enter absolute amount of year 2. 

(iv). Column 4 : Show the difference in amounts between year 1 and year 2. If there is an increase in year 2, put plus sign and there is a decrease put minus sign. 

(v).Column 5 : Show percentage increase or decrease of the difference amount shown in column 4 by dividing the amount shown in column 4 (absolute amount of increase or decrease) by column 2 (year 1 amount)

Percentage increase (or) decrease = (Absolute amount of increase/decrease)/(Year 1 amount) x 100

Analysis and Interpretation refers to a systematic and critical examination of the financial statements. It not only establishes cause and effect relationship among the various items of the financial statements but also presents the financial data in a proper manner. The main purpose of Analysis and Interpretation is to present the financial data in such a manner that is easily understandable and self explanatory. This not only helps the accounting users to assess the financial performance of the business over a period of time but also enables them in decision making and policy and financial designing process.

Cash flow statement is a tool of financial statement analysis.

True

(c) Expert knowledge is not required in analyzing the financial statements

Cash flow analysis concerned with the preparation of cash flow statement which shows the inflow and outflow of cash and cash equivalents in a given period of time. Cash includes cash in hand and demand deposits with banks. Cash equivalents denote short term investments which can be realised easily within a short period of time without much loss in value. Cash flow analysis helps in assessing the liquidity and solvency of a business concern.

In a common size statement each item is expressed as a percentage of some common base.

True

The correct answer is : (a) + 20 %

(b) Income statement, Balance sheet, and statement of changes in financial position

(b) Profit and Loss Account, Profit and loss Appropriation Account and Balance Sheet

The correct answer is : (b) Debtors

(c) Long – Term Deferred Changes

 (i) Operating Activities. 

(ii)Investing Activities. 

(iii)Financing Activities.

It will be operating activities in case of a finance company and investing activities in case of Non-Financing Company. 

Give any two examples- 

(i) Acquisition of fixed asset by issue of debentures or shares. 

(ii) Conversion of debentures into shares.

The Current accounts of partners may show credit or debit balance.

1. No Interest on capital is allowed. 

2. Since the profit is sufficient, Interest on capital will be provided. 

Ahamad: 

60, 000 × 4/100  = Rs. 2, 400 

Basheer: 

40, 000 × 4/100 = Rs. 1, 600

3. Since the profit is insufficient, Interest on capital will be provided. 

Ahamad:

60, 000 × 6/100  = Rs. 3, 600 

Basheer: 

40, 000 × 6/100 = Rs. 2, 400 

Profit of 5,000 will be distributed to the partners in their capital ratio of 3:2.

Partnership deed is a document in writing that contains the terms of the agreement among the partners. It is not compulsory for a partnership to have a partnership deed as per the Indian Partnership Act, 1932. But, it is desirable to have a partnership deed as it serves as an evidence of the terms of the agreement among the partners.

Under fixed capital method, the capital of the partners is not altered and it remains generally fixed. 

Two accounts are maintained for each partner namely:

1. Capital account and 

2. Current account

The transactions relating to initial capital introduced, additional capital introduced and capital permanently withdrawn are entered in the capital account and all other transactions are recorded in the current account.