Class 10 Finance and Accounting Mock Test (ICSE)

Topics in Finance and Accounting

• Sources of finance: owned and borrowed
• Shares and debentures
• Capital and revenue expenditure
• Final accounts: trading account, profit and loss account
• Balance sheet

Finance and Accounting practice questions with answers

1. Q1Multiple choice·1 mark
   Which of the following is an example of a capital expenditure?

   1. (a)Payment of wages to factory workers amounting to ₹ $10,000$
   2. (b)Purchase of machinery for ₹ $50,000$
   3. (c)Purchase of raw materials worth ₹ $15,000$
   4. (d)Repair charges paid for office furniture of ₹ $2,000$
   Show answer and step marks

   1. Correct option: (b) Purchase of machinery for ₹ $50,000$+1

   Answer: (b)
2. Q2Multiple choice·1 mark
   In a company's Balance Sheet, 'Sundry Creditors' are classified under which of the following heads?

   1. (a)Long-term Liabilities
   2. (b)Fixed Assets
   3. (c)Current Assets
   4. (d)Current Liabilities
   Show answer and step marks

   1. Correct option: (d) Current Liabilities+1

   Answer: (d)
3. Q3Short answer·2 marks
   Differentiate between owned sources of finance and borrowed sources of finance on the basis of 'control' and 'security'.
   Show answer and step marks

   1. Basis of control: owned capital raised through equity shares gives its providers voting rights and so control over management (preference shareholders have only limited voting rights), whereas lenders of borrowed capital such as debenture holders and banks get no voting rights or management control.+1
   2. Basis of security: owned capital needs no mortgage or charge on assets, whereas borrowed capital is usually raised against security such as a mortgage or charge on the company's assets (though some borrowing, like unsecured debentures, is not secured).+1

   Answer: Control: equity owners usually get voting rights and control, while lenders of borrowed funds get no voting rights or control. Security: owned capital needs no security, while borrowed capital is usually secured by a charge on assets (some borrowing is unsecured).
4. Q4Short answer·2 marks
   State two differences between owned sources and borrowed sources of finance.
   Show answer and step marks

   1. First difference, any one of: ownership (providers of owned funds become owners, providers of borrowed funds are creditors); control (equity owners usually get voting rights, lenders get no voting rights or control); return (dividend on owned funds depends on profits and is not compulsory, while interest on borrowed funds, at a fixed or floating rate, must be paid whether or not there are profits); repayment (owned capital is not repaid during the life of the business, borrowed funds must be repaid after a fixed period); security (owned funds need no security, borrowed funds are usually secured on assets); risk (owned funds carry no fixed burden, borrowed funds add a repayment burden); or any other valid difference.+1
   2. Second difference, a different one from the same list.+1

   Answer: Any two of: owned funds make providers owners, borrowed funds make them creditors; equity owners usually vote, lenders do not; dividend depends on profits while interest must be paid even without profits; owned capital is not repaid during the business's life, borrowed funds are repaid after a fixed period; borrowed funds are usually secured, owned funds are not.
5. Q5Long answer·4 marks
   Explain any four points of distinction between equity shares and debentures.
   Show answer and step marks

   1. First distinction, any one of: status (an equity shareholder is an owner of the company, a debenture holder is its creditor); return (dividend on equity shares varies with profits and is not compulsory, interest on debentures is paid at the agreed rate whether or not there are profits); repayment (equity share capital is not refunded during the life of the company, debentures are usually redeemed after a fixed period); security (equity shares carry no charge on assets, debentures are usually secured by a charge on the company's assets); voting rights (equity shareholders have voting rights, debenture holders do not); priority on winding up (debenture holders are repaid before equity shareholders); risk (equity shareholders bear the highest risk, debenture holders bear less); or any other valid distinction.+1
   2. Second distinction, a different one from the same list.+1
   3. Third distinction, a different one from the same list.+1
   4. Fourth distinction, a different one from the same list.+1

   Answer: Any four of: shareholders are owners, debenture holders are creditors; dividend varies with profits, interest is paid at the agreed rate even without profits; equity capital is not refunded during the company's life, debentures are usually redeemed after a fixed period; debentures are usually secured on assets, shares are not; shareholders vote, debenture holders do not; debenture holders are repaid first on winding up; equity carries more risk.
6. Q6Long answer·4 marks
   (a) State any two points of distinction between equity shares and debentures. (b) Explain any two types of debentures issued by a joint stock company.
   Show answer and step marks

   1. (a) First distinction, any one of: status (equity shareholders are owners, debenture holders are creditors); return (dividend varies with profits, interest is paid at the agreed rate irrespective of profits); repayment (equity capital is not refunded during the company's life, debentures are usually redeemed after a fixed period); security (debentures are usually secured on the company's assets, equity shares are not); voting rights (equity shareholders vote, debenture holders do not); or any other valid distinction.+1
   2. (a) Second distinction, a different one from the same list.+1
   3. (b) First type explained, any one of: secured or mortgage debentures (backed by a fixed or floating charge on the company's assets); unsecured or naked debentures (no charge on assets); redeemable debentures (repaid after a specified period); irredeemable or perpetual debentures (not repaid during the life of the company, only on winding up); convertible debentures (can be converted into equity shares); non-convertible debentures; registered debentures (holders' names recorded in the company's register, transferred by a transfer deed); bearer debentures (transferable by mere delivery); or any other valid type.+1
   4. (b) Second type explained, a different one from the same list.+1

   Answer: (a) Any two of: shareholders are owners, debenture holders creditors; dividend varies with profits, interest is paid at the agreed rate; equity capital is not refunded during the company's life, debentures are redeemed; debentures are usually secured, shares are not; shareholders vote, debenture holders do not. (b) Any two of: secured, unsecured, redeemable, irredeemable, convertible, non-convertible, registered and bearer debentures, each explained.

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