In financial management, the 'Degree of Financial Leverage' (DFL) is calculated at a given level of EBIT as: MCQ with Answer and Explanation

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In financial management, the 'Degree of Financial Leverage' (DFL) is calculated at a given level of EBIT as:

A. EBIT / (EBIT - Interest)

B. Contribution / EBIT

C. Both A and B depending on the presence of preference shares

D. EBIT / (EBIT - Interest - Preferred Dividend / (1 - Tax Rate))

Answer: Option C

Solution (By JKSSB Mock Tests)

DFL measures the sensitivity of EPS to changes in EBIT. If only debt is present, DFL = EBIT / (EBIT - I). If preference shares are also present, the formula includes the pre-tax equivalent of preference dividends, making D option correct.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping

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Question #1

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When preparing BRS from Cash Book balance (Dr.), a cheque issued but not yet presented should be:

A. Added

B. Adjusted in capital

C. Deducted

D. Ignored

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Correct Answer: Option C

Explanation:
To reconcile to Pass Book, we deduct unpresented cheques because they have already reduced cash book balance but not passbook.

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Question #2

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Which of the following is NOT a component of the cost of production?

A. Office and administration overheads

B. Factory overheads

C. Selling and distribution overheads

D. Direct materials

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Correct Answer: Option C

Explanation:
Cost of production includes prime cost, factory overheads, and office/admin overheads. Selling and distribution overheads are added to arrive at the Cost of Sales, not Cost of Production.

This question belongs to: Accountancy and Statistics Accountancy and Book Keeping