Top 20 Finance questions asked in MBA interview ! PART 2.

Q11)-What are the rules of double entry book keeping for various types of accounts?

 Following are the basic rules of double entry book keeping for various types of accounts:

- Personal Account : Debit the Receiver, Credit the Giver
-Real Account : Debit what comes in, Credit what goes out
-Nominal Account : Debit all the Expenses, Credit all the Incomes Q12)-What is depreciation?What are the causes of depreciation? Is it a cost? Why? Depreciation is a permanent, gradual and continuous reduction in the book value of the fixed asset. Except Land all the fixed assets e.g. Car, Machinery, Furniture etc depreciates in value making the asset useless after the end of a certain period. Following are the causes of Depreciation:

-Wear and Tear due to regular use of the asset
-Deterioration occurs with the passage of time, whether the asset is in use or not
-Damages done to the assets due to an accident like fire, mishandling etc.
-Depletion of Asset
-Obsolescence i.e. due to new technology in use, new inventions, innovations etc.

Yes, depreciation is a cost. It is a historical cost, which is charged against profits of the organization reducing the profitability. It is a non-cash cost as it is never paid or incurred in cash. Q13)-What is the need of depreciation account? According to the matching principle of accounting, the costs incurred in the accounting year should be matched with the revenue or income earned during the same accounting year. Thus, it is necessary to spread the cost of fixed asset less scrap or realizable value after the useful life of the fixed asset is over and this process of ascertain the same is called depreciation accounting. Thus, depreciation account is needed for mainly two purposes: To ascertain due profits and to represent the value of the fixed asset at its unexpired cost that is book value of the asset less depreciation. Q14)-What is the effect of depreciation of assets on profits received by owners? Depreciation forms a part of cost which is used for arriving at correct estimation of profits, which then is distributed to the owners of the business in the form of dividend. Addition of depreciation to the cost reduces the amount of distributable profits. By maintaining a depreciation account a part of the distributable profit is retained in the business as a reserve which is used to purchase new machinery or for other purposes in the future which reduces the profits or dividends received by the owners. Q15)What are the entries to be passed for preparing final accounts? Closing Stock

Following entry will be passed:

Closing stock account – Debit

Trading account – Credit b.) Depreciation

Following entry will be passed:

Depreciation account – Debit

Fixed asset account – Credit c.) Outstanding Expenses

Following entry will be passed:

Expenses account – Debit

Outstanding account – Credit d.) Prepaid Expenses

Following entry will be passed:

Prepaid expenses account – Debit

Expenses account – Credit e.) Accrued Income

Following entry will be passed:

Accrued Income account – Debit

Income account – Credit f.) Income received in advance

Following entry will be passed:

Income account – Debit

Income received in advance account – Credit g.) Bad debts

Following entry will be passed:

Bad Debts account – Debit

Sundry Debtors account – Credit h.) Provision for doubtful debts

Following entry will be passed:

Provision for Doubtful Debts account – Debit

Sundry Debtors account – Credit i.) Provision for discount on Debtors

Following entry will be passed:

Provision for Discount for Debtors account – Debit

Sundry Debtors account – Credit j.) Interest on Capital

Following entry will be passed:

Interest on capital account – Debit

Capital account – Credit k.) Drawings

Following entry will be passed:

Drawing account – Debit

Sales account – Credit l.) Deferred revenue expenditure written off

Following entry will be passed:

Deferred revenue expenditure written off account – Debit

Deferred revenue expenditure account – Credit m.) Abnormal Loss

Following entry will be passed:

Abnormal Loss account – Debit

Stock destroyed account – Credit

.If the organization has insured the stock with the insurance company then the insurance company settles the claim, either in full or part. In that case the following entry will be passed:

Insurance company account – Debit

Abnormal loss account – Debit

Stock destroyed – Credit n.) Goods distributed as free samples

Following entry will be passed:

Advertisement account – Debit

Sales account – Credit o.) Goods sent on approval basis:

Goods sent on approval basis should not be treated as sales till the goods are finally approved by the customer because property in goods is not transferred until the said period is over. If the goods sent on approval basis are treated as sales then closing stock will be increased by the cost of such goods sent on approval basis. p.) Commission payable to the manager:

Following entry will be passed:

Commission account – Debit

Commission payable account – Credit Q15)-Explain Bank Reconciliation Statement. Why is it prepared? Bank Reconciliation Statement is a statement prepared to reconcile the balances of cash book maintained by the concern and pass book maintained by the bank at periodical intervals. At the end of every month entries in the cash book are compared with the entries in the pass book. The causes of differences in balances of both the books are scrutinized and then reconciliation statement is prepared. This statement is prepared for a special purpose and once in a month. It is prepared with a view to indicate items which cause difference between the balances as per the bank columns of the cash book and the bank pass book at a particular date. Q16)-What are the reasons which cause pass book of the bank and your bank book not tally? 
* Cheques deposited into the bank but not yet collected
* Cheques issued but not yet presented for payment
* Bank charges
* Amount collected by bank on standing instructions of the concern.
* Amount paid by the bank on standing instructions of the concern.
* Interest debited by the bank
* Interest credited by the bank
* Direct payment by customers into the bank account
* Dishonour of cheques
* Clerical errors Q17)-What does capital market mean? How does the company raise funds in capital market? Capital market is the market in which financial securities have been traded between the individuals and the institutions. These institutions sell securities on capital markets in public and private sectors to raise funds. This market is composed of both primary and secondary markets. The parts of capital markets are both stock and bond markets. Large Corporation grow by doing innovations and by raising the capital to finance expansion. Corporations have FOUR primary methods which are used to raise funds in capital market. 1) Issue of bonds : – Bond is an amount of money which has to be given at a certain date or dates in future. Bondholders receive interest payments at fixed rate and specific dates. Corporate issues bonds because interest rates which must pay investors are lower than rates of borrowing and holders can sell bonds to someone else before they due. 2) Issue of preferred stock : – company choose this to raise capital. If a company have financial trouble the buyers of shares gets special status. If profits are limited then owners will be paid the dividend after bondholders receive the interest payments. 3) Sell of common stock : – if financial condition of the company is good then it can raise the capital issue the common stock. Bank helps the companies to do the investment and issue stock. Investors’ gets interested if the company pays large dividends and offers steady income. Value of shares increases if investor expects the corporate earnings to rise. 4) Borrowing:- companies used to raise short term capital by getting the loans from banks or other sources. After good market run the profits which the company gets can be used to finance their operating by retaining their earnings. Q18)-What “rights issue” do the shareholders of a company have under Companies Act, 1956? The rights and duties of shareholders are defined from time to time of issue of shares. The rights of shareholders are fixed which can’t be altered unless the Companies Act gets modified. Right issue which shareholders hold of a company under Companies Act, 1956 are as follows:- 1) Rights attached to shares of any class can be varied with the consent of shareholders holding not less than 75% of issued shares. 2) Rights of Dissenting Shareholders: Protection by Companies Act is given to the shareholders who doesn’t consent to or vote for variation of their rights. If there is any variance in any rights of any class of shareholders then holders of not less than 10% of shares of that class can apply to the court to have the variation cancelled. It won’t have any affect till it is been approved by the court. 3) Voting rights of the members: – Every member of public company which has the shares holding equity has votes in proportions to his share in paid up equity capital. 4) Preference shareholders don’t have any voting rights. They can vote only on matters which are directly related to the rights attached to preference share capital.

There is a right to vote for every equity shareholder at general meeting. No company can stop any member from his voting right on any ground. The members voting rights can be changed if member doesn’t make payment or other sums which are due against. Q19)-What are the eligibility criteria for an unlisted company to make public issue? The eligibility criteria which have to be satisfied by the Unlisted Company to make public issue are as follows: 1. Pre-issue net worth of company should not be less than Rs. 1 crore and it should be maintained for last 3 out of 5 years with minimum net worth. 2. The net worth should be met for upcoming 2 years. 3. Tracking of the records of profits has to be maintained for at least 3 years out of immediately upcoming 5 years. 4. Issue size should not be more than 5 times its pre-issue net worth. 5. Incase these requirements are not satisfied then the company can issue through book-building process, it has to allot at least 60% of issue size to Qualified Institutional Buyers. Q20)-What are the main duties and responsibilities of a finance executive? Recurring Duties: Deciding the financial needs Raising the funds required Allocation of funds 1. Fixed assets management 2. Working capital management Allocation of Income Control of Funds Evaluation of Performance Corporate Taxation mba finance interview questions and answers pdf mba finance interview questions and answers for freshers finance and accounts interview questions and answers for freshers interview questions for mba finance freshers in genpact mba personal interview questions and answers pdf basic finance interview questions job interview questions for mba finance students why finance in mba