Tag: Finance Function

There are a number of motives that influence how much a business wishes to hold in cash.

When a company holds cash in order to make the payments that are necessary to keep the business going, such as wages, taxes and payments to suppliers, the motive behind this is?

Select ONE answer:

1. The transactions motive
2. The finance motive
3. The precautionary motive
4. The speculative motive

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > The transactions motive means that a business holds cash to meet its current day-to-day financial obligations.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Alex plc is trying to decide on its optimal level of current assets.

The company’s management face a trade-off between?

Select ONE answer:

1. Profitability and risk
2. Inventory and receivables
3. Equity and debt
4. Short-term and long-term borrowing

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct == > All businesses face a trade-off between being profitable and being liquid. Less liquidity may yield greater profitability, but less liquidity equals greater risk. As both inventory and receivables (2) are current assets the trade-off between these does not affect the overall level of the value of current assets. The equity and debt (3) trade-off is concerned with long-term capital structure rather than current assets. The short-term versus long-term borrowing trade-off (4) is a financing decision unrelated to current assets.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.

Two brothers, Ken and Alex, run a family-owned removals company called Ted Moves It Ltd based in Staffordshire which is currently facing liquidity problems and needs an injection of funds.

From the following list of sources of finance available to the company, identify which would be classified as a source of short-term finance?

Select ONE answer:

1. Share capital
2. Bank Loan
3. Factoring
4. Commercial mortgage

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct == > Short-term funds are those used to cover normal operations and can be taken to mean finance available for up to one year. An example is debt factoring. Bank loans and mortgages are debt finance provided for more than one year, while share capital is equity finance that is also provided for more than one year.
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.