Chapter Exam

Chapter 4 COMMERCE : Sources of Business Finance — Online MCQ Test

Q: Which of the following is considered a source of short-term finance?

Answer: B. Trade Credit — Trade credit is a facility provided by suppliers to business firms for the purchase of goods, typically for a short duration.

Q: The funds generated internally by a company by keeping a part of the profit is called ________.

Answer: A. Retained Earnings — Retained earnings, also known as ploughing back of profits, is the portion of net profit not distributed as dividends.

Q: Which source of finance involves a legal agreement between a bank and a business to withdraw more money than deposited in a current account?

Answer: B. Bank Overdraft — Bank overdraft is a credit facility that allows an account holder to withdraw funds beyond the account balance up to an agreed limit.

Q: If a company is in a phase of 'financial distress', which source of finance would be most risky for the firm to maintain?

Answer: C. Debentures — Debentures require fixed interest payments regardless of company profit levels, making them high-risk during financial distress.

COMMERCE · CLASS 11 INTER I YEAR · Andhra State Board

Practice Chapter 4 COMMERCE : Sources of Business Finance with a free chapter-wise online MCQ test for Andhra State Board CLASS 11 INTER I YEAR COMMERCE. This chapter covers: This chapter details short-term medium-term and long-term financial sources including shares debentures retained earnings commercial bank loans and trade credit.. AI-generated questions from basic to board-exam level, with instant results and explanations.

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Chapter 4 COMMERCE : Sources of Business Finance — Important Questions & Answers (FAQ)

Frequently asked questions from Andhra State Board CLASS 11 INTER I YEAR COMMERCE — Chapter 4 COMMERCE : Sources of Business Finance, with answers and explanations. These are sample questions; the exam has its own separate question set.

Which of the following is considered a source of short-term finance?

A. Issue of Debentures
B. Trade Credit ✓
C. Preference Shares
D. Public Deposits

Answer: B. Trade Credit
Trade credit is a facility provided by suppliers to business firms for the purchase of goods, typically for a short duration.

The funds generated internally by a company by keeping a part of the profit is called ________.

A. Retained Earnings ✓
B. Equity Shares
C. Bank Overdraft
D. Loan from IDBI

Answer: A. Retained Earnings
Retained earnings, also known as ploughing back of profits, is the portion of net profit not distributed as dividends.

Which source of finance involves a legal agreement between a bank and a business to withdraw more money than deposited in a current account?

A. Term Loan
B. Bank Overdraft ✓
C. Leasing
D. Factoring

Answer: B. Bank Overdraft
Bank overdraft is a credit facility that allows an account holder to withdraw funds beyond the account balance up to an agreed limit.

If a company wants to minimize the cost of capital, why might it prefer debt over equity?

A. Interest paid on debt is a tax-deductible expense. ✓
B. Debt does not require any repayment of the principal amount.
C. Debt increases the voting power of the management.
D. Debt holders have the highest claim on assets in case of liquidation.

Answer: A. Interest paid on debt is a tax-deductible expense.
Interest on debt is treated as a business expense and is tax-deductible, reducing the effective cost of debt compared to dividends paid out of post-tax profits.

If a company is in a phase of 'financial distress', which source of finance would be most risky for the firm to maintain?

A. Retained Earnings
B. Equity Shares
C. Debentures ✓
D. Issue of fresh shares

Answer: C. Debentures
Debentures require fixed interest payments regardless of company profit levels, making them high-risk during financial distress.

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