Practice test 13 for Financial Management and Strategic Management covering Management of Working Capital, Types of Financing - Lease Financing, Types of Financing - Deep Discount Bonds, Types of Financing - International Financing, Strategic Analysis: External Environment, Strategy Implementation and Evaluation - Strategic Leadership, Strategy Implementation and Evaluation - Strategic Control.
16 questions across 7 chapters, 30 marks and 60 minutes in the timed paper. Every answer below is shown with the working behind it and the authority it rests on.
Law and standards used: ICAI Study Material for CA Intermediate Paper 6: Financial Management and Strategic Management (relevant for January 2027 attempt).
Questions
16
Marks
30
Time limit
60 minutes
Attempt
January 2027
Group
Group 2
Law basis
ICAI Study Material for CA Intermediate Paper 6: Financial Management and Strategic Management (relevant for January 2027 attempt)
Content as of
2026-11-04
Chapters covered
Management of Working Capital (3 Q)
Types of Financing - Lease Financing (3 Q)
Types of Financing - Deep Discount Bonds (1 Q)
Types of Financing - International Financing (1 Q)
Strategic Analysis: External Environment (3 Q)
Strategy Implementation and Evaluation - Strategic Leadership (3 Q)
Strategy Implementation and Evaluation - Strategic Control (2 Q)
Questions, answers and explanations
Question 1 · 2 marks · Management of Working Capital · medium
Scenario. Kaveri Agro Ltd estimates annual credit sales of ₹150 lakh and cash cost of sales of ₹120 lakh after excluding depreciation of ₹10 lakh. Raw material consumption is ₹60 lakh, wages are ₹24 lakh and cash manufacturing overheads are ₹30 lakh. It holds raw material for 2 months of consumption, finished goods for 1.5 months of cash cost of production, debtors for 2 months of cash cost of sales and cash of ₹5 lakh. Creditors for raw material are 1 month, wages payable are 0.5 month and overheads payable are 1 month. A safety margin of 10% of net working capital is required.
Debtors on cash cost basis are:
₹25.00 lakh
₹20.00 lakh (correct answer)
₹18.00 lakh
₹24.00 lakh
Answer: B — ₹20.00 lakh
Working. Debtors = Cash cost of sales × Debtors period / 12 = ₹120 lakh × 2/12 = ₹20 lakh.
Explanation. Debtors on cash cost basis use cash cost of sales, not sales value, and exclude depreciation and profit margin. Cash cost of sales is ₹120 lakh for 2 months, so debtors are ₹20 lakh. Option a wrongly uses annual sales of ₹150 lakh. Option c is not the cash cost based figure. Option d does not follow the given 2-month cash cost sales period.
Where it goes wrong. Students may use credit sales of ₹150 lakh and get ₹25 lakh, or include depreciation and profit in the debtor valuation.
Authority. Chapter 9: Management of Working Capital - Working Capital Requirement Estimation based on Cash Cost
Question 2 · 2 marks · Management of Working Capital · medium
Explanation. Current assets are raw material ₹10 lakh, finished goods ₹14.25 lakh, debtors ₹20 lakh and cash ₹5 lakh, totalling ₹49.25 lakh. Current liabilities are raw material creditors ₹5 lakh, wages payable ₹1 lakh and overheads payable ₹2.5 lakh, totalling ₹8.5 lakh. Net working capital is ₹40.75 lakh. Option a includes the safety margin. Option b is gross current assets. Option d is not obtained from the given working capital components.
Where it goes wrong. Students may treat gross current assets as net working capital or forget to deduct wages and overheads payable.
Authority. Chapter 9: Management of Working Capital - Estimation of Working Capital Requirements
Question 3 · 2 marks · Management of Working Capital · medium
Total working capital requirement after a 10% safety margin is:
₹44.83 lakh (correct answer)
₹40.75 lakh
₹49.25 lakh
₹48.31 lakh
Answer: A — ₹44.83 lakh
Working. Safety margin = 10% × ₹40.75 lakh = ₹4.075 lakh. Total working capital = ₹40.75 + ₹4.075 = ₹44.825 lakh, rounded to ₹44.83 lakh.
Explanation. The safety margin is applied on net working capital of ₹40.75 lakh, giving ₹4.075 lakh. Total working capital requirement is ₹44.825 lakh, closest to ₹44.83 lakh. Option b is net working capital before safety margin. Option c is gross current assets. Option d does not follow the stated safety margin calculation.
Where it goes wrong. Students may apply the safety margin to gross current assets instead of net working capital.
Authority. Chapter 9: Management of Working Capital - Estimation of Working Capital Requirements
Question 4 · 2 marks · Types of Financing - Lease Financing · medium
Scenario. Supreme Logistics Ltd is evaluating an asset costing ₹50 lakh with useful life 5 years and nil salvage. Depreciation is SLM. Tax rate is 30%. Borrowing rate is 10%. Annual lease rent is ₹12 lakh payable at year-end for 5 years. Lease rentals and depreciation are tax-deductible. For a simplified lease-versus-buy evaluation, ignore interest tax shield and use PVAF at 10% for 5 years as 3.7908.
Explanation. Annual depreciation is cost divided by useful life, that is ₹50 lakh divided by 5, equal to ₹10 lakh. The tax shield is 30% of depreciation, equal to ₹3 lakh. Option a is half of the correct shield. Option b is depreciation itself. Option c is not supported by the given tax rate and depreciation.
Where it goes wrong. Students may report depreciation instead of depreciation tax shield.
Authority. Chapter 2: Types of Financing - Lease Financing
Question 5 · 2 marks · Types of Financing - Lease Financing · medium
Present value of after-tax lease rentals is closest to:
Explanation. Lease rent is tax-deductible, so the after-tax lease outflow is ₹12 lakh × 70% = ₹8.4 lakh per year. Discounting by PVAF 10%, 5 years of 3.7908 gives ₹31.84 lakh. Option a wrongly discounts pre-tax lease rent. Option b is not based on the stated discount factor. Option d does not use the given lease rent and tax rate correctly.
Where it goes wrong. Students may discount lease rent before tax or use the wrong annuity factor.
Authority. Chapter 2: Types of Financing - Lease Financing
Question 6 · 2 marks · Types of Financing - Lease Financing · hard
Using the simplified lease-versus-buy evaluation, net advantage of leasing is closest to:
Explanation. Net advantage of leasing equals asset cost minus PV of after-tax lease rentals minus PV of depreciation tax shield. It is ₹50 lakh minus ₹31.84272 lakh minus ₹11.3724 lakh, equal to positive ₹6.78488 lakh. A positive figure indicates net advantage to leasing under the stated simplified assumptions. Option a has a sign error. Option c ignores the depreciation tax shield. Option d is not obtained from the stated cash flows.
Where it goes wrong. Students may omit the depreciation tax shield, use pre-tax lease rentals or reverse the sign of the net advantage.
Authority. Chapter 2: Types of Financing - Lease Financing
Question 7 · 2 marks · Types of Financing - Deep Discount Bonds · hard
Scenario. At a financing review, the CFO of Supreme Logistics examines a deep discount bond and depository receipts. A deep discount bond has face value ₹1,00,000, issue price ₹20,000 and maturity 10 years. No interest is paid. The company also considers ADR and GDR routes.
The compound annual yield on the deep discount bond is closest to:
17.46% (correct answer)
20.00%
14.87%
10.00%
Answer: A — 17.46%
Working. Yield = (Face value / Issue price)^(1/n) - 1 = (₹1,00,000 / ₹20,000)^(1/10) - 1 = 5^0.1 - 1 = 0.1746, that is 17.46%.
Explanation. A deep discount bond pays no interest and is redeemed at face value. The compound annual yield is found from face value divided by issue price, raised to 1 divided by maturity, minus 1. This gives approximately 17.46%. Option b is a simple interest approximation. Option c and option d do not use the given issue price, face value and maturity correctly.
Where it goes wrong. Students may divide total gain by years and report a simple annual return instead of compound annual yield.
Authority. Chapter 2: Types of Financing - Other Sources of Financing
Question 8 · 1 marks · Types of Financing - International Financing · medium
Which statement about ADRs and GDRs is correct?
An ADR is issued by a US company to raise funds in India.
A GDR can be listed only on a US exchange.
An ADR always carries a fixed interest rate like a debenture.
An ADR represents shares of a non-US company traded on a US exchange, while a GDR is generally traded in European markets. (correct answer)
Answer: D — An ADR represents shares of a non-US company traded on a US exchange, while a GDR is generally traded in European markets.
Working. Conceptual mapping: ADR is a US depository receipt for non-US shares; GDR is a global depository receipt generally listed in Europe.
Explanation. ADRs are depository receipts issued by non-US companies and traded on US exchanges. GDRs are depository receipts generally traded in European markets, especially London. Option a reverses the issuer location. Option b wrongly restricts GDR listing to the US. Option c confuses depository receipts with debt instruments.
Where it goes wrong. Students may treat ADR and GDR as debt securities or mix up the markets in which they are traded.
Authority. Chapter 2: Types of Financing - International Financing
Question 9 · 2 marks · Strategic Analysis: External Environment · medium
Scenario. Agritech India Ltd exports agri-inputs. A geopolitical export embargo by a key importing country and rising input cost inflation with high interest rates have created strategic uncertainty. The board asks for PESTEL-based scenario planning.
The geopolitical export embargo is primarily a:
Economic factor
Socio-cultural factor
Political-legal factor (correct answer)
Technological factor
Answer: C — Political-legal factor
Working. PESTLE classification: embargo by a key importing country = government or geopolitical restriction = political-legal.
Explanation. An export embargo arises from government or geopolitical action and affects market access through political and legal channels. Hence it is a political-legal factor. Economic factors relate to inflation, interest rates, income and market conditions. Socio-cultural factors relate to beliefs and lifestyles. Technological factors relate to innovation and technology adoption.
Where it goes wrong. Students may label any export-related issue as economic and miss the political-legal source of the embargo.
Explanation. Inflation and interest rates are macroeconomic variables and directly affect costs, demand and capital availability. They are economic factors under PESTLE. Political factors concern government ideology and intervention. Environmental factors concern ecology and climate. Legal factors concern laws and regulations.
Where it goes wrong. Students may classify interest rates as political because government influences them, but in PESTLE they are primarily economic.
Explanation. Scenario planning helps organizations examine plausible future states and prepare flexible strategic responses. It does not eliminate uncertainty. It does not replace premise control with one forecast. It is broader than past sales data. Hence option d is correct.
Where it goes wrong. Students may overstate scenario planning as a forecasting tool that removes uncertainty.
Authority. Chapter 2: Strategic Analysis: External Environment - PESTLE Analysis and International Environment
Question 12 · 2 marks · Strategy Implementation and Evaluation - Strategic Leadership · medium
Scenario. TechVista is shifting from waterfall to agile development. The CEO communicates a compelling vision, encourages questioning of old routines, provides intellectual stimulation and individualized coaching, and energizes employees during the cultural shift.
Explanation. The CEO uses vision, intellectual stimulation, individualized coaching and enthusiasm to energize employees during a cultural shift. These are transformational leadership characteristics. Transactional leadership relies more on formal rewards and punishments. Autocratic leadership centralizes decisions. Laissez-faire leadership avoids intervention.
Where it goes wrong. Students may confuse vision and coaching with transactional reward-based leadership.
Authority. Chapter 5: Strategy Implementation and Evaluation - Strategic Leadership
Question 13 · 2 marks · Strategy Implementation and Evaluation - Strategic Leadership · medium
Which action most reflects intellectual stimulation?
Linking pay strictly to monthly targets
Encouraging employees to question old routines and create new solutions (correct answer)
Monitoring attendance daily
Avoiding communication during change
Answer: B — Encouraging employees to question old routines and create new solutions
Working. Conceptual mapping: intellectual stimulation = questioning routines, creativity and new solutions.
Explanation. Intellectual stimulation encourages employees to challenge assumptions, question old routines and generate innovative solutions. Pay linked strictly to targets is closer to transactional leadership. Daily attendance monitoring is administrative control. Avoiding communication is inconsistent with effective change leadership.
Where it goes wrong. Students may select reward-based actions as transformational, but those are generally transactional.
Authority. Chapter 5: Strategy Implementation and Evaluation - Strategic Leadership
Question 14 · 2 marks · Strategy Implementation and Evaluation - Strategic Leadership · medium
Transformational leadership is most appropriate when:
The environment is stable and routine tasks require strict control
The organization is performing well and only minor efficiency gains are needed
A turbulent environment requires major cultural change and energized commitment (correct answer)
Formal reward-punishment is sufficient for smooth operations
Answer: C — A turbulent environment requires major cultural change and energized commitment
Working. Conceptual mapping: transformational leadership fits turbulent environment and major cultural change.
Explanation. Transformational leadership suits turbulent conditions, major change and situations requiring vision and energized commitment. Stable routine operations with strict control are more compatible with transactional or administrative leadership. Minor efficiency gains do not necessarily require transformational change. Reward-punishment alone is transactional.
Where it goes wrong. Students may think transformational leadership is always suitable, but it is especially relevant in major change contexts.
Authority. Chapter 5: Strategy Implementation and Evaluation - Strategic Leadership
Question 15 · 2 marks · Strategy Implementation and Evaluation - Strategic Control · medium
Scenario. A sudden regulatory tariff change affects TechVista's cloud hardware imports. The crisis team immediately reviews strategy, while the strategy team also scans newspapers, industry reports and conferences for weak signals.
The immediate intense review triggered by the sudden tariff change is an example of:
Explanation. Special alert control is triggered by unexpected events such as sudden regulatory changes, natural calamities or competitor mergers and requires an immediate review of strategy. Premise control monitors the validity of assumptions. Strategic surveillance is broad scanning. Implementation control monitors incremental implementation progress.
Where it goes wrong. Students may select strategic surveillance because the event is external, but the immediate crisis review is special alert control.
Authority. Chapter 5: Strategy Implementation and Evaluation - Strategic Control
Question 16 · 1 marks · Strategy Implementation and Evaluation - Strategic Control · medium
Which statement describes strategic surveillance?
It is broad and unfocused monitoring of information sources for unanticipated strategic signals. (correct answer)
It monitors only selected premises continuously.
It is triggered only by sudden disasters.
It replaces implementation control.
Answer: A — It is broad and unfocused monitoring of information sources for unanticipated strategic signals.
Working. Conceptual mapping: strategic surveillance = general and unfocused environmental scanning.
Explanation. Strategic surveillance involves broad and unfocused monitoring of newspapers, reports, conferences and other information sources to uncover unanticipated strategic signals. Premise control monitors selected premises. Special alert control is triggered by sudden events. Strategic surveillance does not replace implementation control.
Where it goes wrong. Students may confuse strategic surveillance with premise control or special alert control.
Authority. Chapter 5: Strategy Implementation and Evaluation - Strategic Control
Authorities cited in this paper
Chapter 9: Management of Working Capital - Working Capital Requirement Estimation based on Cash Cost · Chapter 9: Management of Working Capital - Estimation of Working Capital Requirements · Chapter 2: Types of Financing - Lease Financing · Chapter 2: Types of Financing - Other Sources of Financing · Chapter 2: Types of Financing - International Financing · Chapter 2: Strategic Analysis: External Environment - PESTLE Analysis · Chapter 2: Strategic Analysis: External Environment - PESTLE Analysis and International Environment · Chapter 5: Strategy Implementation and Evaluation - Strategic Leadership · Chapter 5: Strategy Implementation and Evaluation - Strategic Control
Questions people ask
What does Test 13 cover?
Comprehensive exam-standard case scenarios and MCQs on Management of Working Capital, Types of Financing - Lease Financing, Types of Financing - Deep Discount Bonds, Types of Financing - International Financing, Strategic Analysis: External Environment, Strategy Implementation and Evaluation - Strategic Leadership, Strategy Implementation and Evaluation - Strategic Control across Financial Management (Section A) and Strategic Management (Section B).
How is Test 13 scored?
16 questions across 6 case scenarios carrying 30 marks (14 questions at 2 marks each, and 2 questions at 1 mark each) in 60 minutes with no negative marking.
