Practice test 13 for Section A: Financial Management covering Management of Working Capital, Types of Financing - Lease Financing, Types of Financing - Deep Discount Bonds, Types of Financing - International Financing.
8 questions across 4 chapters, 15 marks and 30 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
8
Marks
15
Time limit
30 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)
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
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
Questions people ask
What does Test 13 cover?
Section A: Financial Management 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.
How is Test 13 scored?
8 questions across 3 case scenarios carrying 15 marks (7 questions at 2 marks each and 1 question at 1 mark) in 30 minutes with no negative marking.
