List of Important and Relevant Economics Interview Questions and Answers
JEROME MICHAEL EBRUPHIYO
Monday, July 19, 2021
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This article will provide a guide on how to answer Economics interview questions in other to secure your dream Job. Here are the list of important and relevant Economics interview questions and answers your interviewer may ask you
All expenditure which results in the acquisition of fixed assets and other development projects, the benefits of which are expected to be received beyond one year in the future is capital expenditure. Also, any expenditure incurred which tends to extend or improve existing fixed assets, so as to increase the profitability of a concern by increasing production or reducing cost of production beyond one year may rightly be called capital expenditure. Thus, amounts of money spent in the acquisition, installation or development of fixed assets and in welfare and research and development projects fall under this category.
They include;
The replacement of fixed assets already in use
The purchase of new fixed assets for expansion of the business
Projects to comply with the statutory requirements such as making provision for accident prevention devices, providing creches and rest-room under the Factory Act, 1948
Welfare projects to motivate the employees
Research and development projects for reducing cost and improving quality of products and finding new uses of the product
Educational and training projects to improve the efficiency of the employees
Prestige-value projects to create a favorable effect in the minds of the public such as investment may be made on guest-houses, public relation department, hospitals, schools, colleges, and so on
Capital expenditure can also be classified into;
Profit earning projects which includes Replacement Projects and Expansion Projects
Non-profit projects
Profitability of projects which cannot be measured
The important distinction between co-ownership and partnership is that while there is ownership and no business in the case of the former, there is both joint ownership and business in the case of the latter. Also, Co-ownership is not always based on agreement, it may arise by the operation of law or from status. A co-ownership is created if a man dies leaving his property to his sons, but a partnership must arise by an agreement, express or implied. Another point is that a co-owner, without the consent of the other co-owners, can transfer his interest to a stranger but a partner is not permitted to transfer his share without the consent of all the partners. A co-owner has no lien on the joint property; whereas a partner being an agent of other partners has a lien on the partnership property.
Companies may be classified from three different angled, From the Point of View of Incorporation, From the Point of View of Liability and From the Point of View of Public Interest. From this point of view, the companies may be:
Private Company,
Public Company, and
Government Company
The privileges include:
Only two members are sufficient to form a private company
There is no need to file the Registrar either prospectus or statement in lieu of prospectus
Business can be commenced immediately after registration and there is no need for the certificate to commence business
It is not required to hold the statutory meeting or to file the statutory report
Two directors are sufficient though more can be appointed if company desires
Directors can receive loans without the approval of the government
Many restrictions regarding the allotment of shares of public companies are not applicable to the shares of private company
Persons can be appointed to the office of profit without any restriction and also there is no restriction regarding the term of appointment
For its meetings only two members can make a quorum, but this is subject to provisions in Articles
Restrictions as to the classes of shares issued by the companies and the issue of shares with disproportionate right are not applicable to private companies
General Partnership and Limited Partnership
With the introduction of Five Year Plans in India, the public sector has been given much important role in the economic development of our nation. By passing the Industrial Policy Resolutions of 1948 and 1956 and Industries (Development and Regulation) Act of 1951, the State’s sphere in the industrial field increased significantly. The State’s investment in public undertakings, which was very negligible in 1951, has increased to about Rs.2, 287 crores in 1962-63 and to Rs.5, 137 crores in 1969-70. While discussing the role of public sector in the Fourth Five Year Plan, the Planning Commission has stated that “during the Fourth Five Year Plan a matter of crucial significance will be the emergence of the public sector as a whole as the dominant more and more of the commanding heights in the production and distribution of basic and consumer goods.” Though much progress has been in the investment in public undertakings, there has been a general criticism that the return on investment earned by the public enterprises is low when compared to the return on the investment in private sector units. This criticism is not unfounded, because according to the study conducted by the Commerce Research Bureau for the years 1962-63 to 1969-70, in no year the rate of return on investment in Central Government undertakings is more than 3 per cent. It may be noted that according to the Reserve Bank of India survey of selected companies in private sector, the gross profits as a percentage of the total capital employed vary on an average from little over 10.5 per cent. In considering the return on investment on public undertakings, we have to give allowance for huge investment involved for providing welfare amenities to the workers and for developing townships. Hence, criticism against the public undertakings may not be completely justified. However, this is not to suggest that the public undertakings are from problems and do not need any improvement. In fact, some of the important problems that are faced by the public undertakings are as follows – faulty production planning, heavy overheads, frequent transfer of managerial personnel, too much interference in the administration by the government, poor project planning, over-capitalization, poor manpower planning, personnel management, and so on.
i. It recognizes time value of money and considers cash flows over a period of several years.
ii. It is based on cash inflows rather than accounting profit; it helps in better analyses of wealth of the shareholders.
iii. An appropriate discount rate ensures shareholders’ expectation is adequately met.
iv. It correctly allows both recovery of initial investment and earning at a predetermined rate.
Disadvantages:
i. Lengthy and difficult calculations are involved.
ii. Determination of the required rate of return is difficult.
iii. May not give correct result while comparing projects with unequal investment of funds.
iv. Use of this method comparing projects with unequal life periods.
A journal is classified into two categories; General journal and Special journals
It takes into account time value of money and is based on cash flows and not accounting profits
It aims at maximizing profits, hence helps in selecting that proposal which is expected to earn more than the minimum rate of return
Determination of cost of capital is not a prerequisite hence better than net present value method
It provides for uniform ranking of various proposals due to the percentage rate of return
It is a more reliable technique of capital budgeting
The Limitations includes:
It is very complicated and tedious
It is based on the assumption that the future cash inflows of a proposal are reinvested at a rate equal to IRR
IRR tends to be biased toward smaller projects
The results of NPV and IRR methods may differ when the projects under evaluation differ in their size, life, and timings of cash flows
Financial analysis can be of the following two types:
External Analysis
Internal Analysis
Financial analysis can also be of two types on the Basis of Modus Operandi:
Horizontal Analysis
Vertical Analysis
Ratio Analysis
It is simple to understand and easy to compute
It is cost effective as compared to other methods
It recommends that project where the PBP is shorter, the loss is reduced due to obsolescence
Demerits includes:
It ignores cash inflows after the payback period, which may result in incorrect selection of project and does not consider the life time of the asset
It ignores time value of money and does not consider the magnitude and timings of cash inflows
It does not consider cost of capital for taking investment decisions
Decision taken on the basis of payback period may become subjective
It is very simple and easy to operate
It takes the entire earnings of the project in calculating rate of return, hence gives better view of profitability unlike PBP
It is based on the accounting concept of profits, which is readily available hence easy to compute
Demerits includes:
It ignores time value of money; it ignores the fact that a rupee earned today is of more value than a rupee earned a year after, or so
It ignores cash inflows which are important as it considers accounting profits
It ignores the period in which the profits are earned
It cannot be applied in projects where investments are made in parts or at different time periods
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