Course: Financial Statement Reporting and Analysis

MBA (Outcome Based – CBCS)

MODEL QUESTION BANK

Semester – I

1T5 – Financial Statement Reporting and Analysis

Module 1
Accounting Standards: Introduction to Indian Accounting Standards; AS 2 (Valuation of Inventories), AS
3 (Cash Flow Statement), AS 6 (Depreciation Accounting), AS 10 (Accounting for Fixed Assets); Practical
Questions on these accounting standards
CO1: Given accounting situation students will able to evaluate selected accounting standards and
perform

Question 1. The company deals in three products, A, B and C, which are neither similar nor
interchangeable. At the time of closing of its account for the year 2017-18. The Historical Cost and Net
Realizable Value of the items of closing stock are determined as follows:
Items Historical Cost( in Rs Lakhs) Net Realisable Value ( in Rs Lakhs)

A 40 28

B 32 32

C 16 24

What will be the value of Closing Stock as per Indian Accounting Standards AS 2?
Answer:
As per para 5 of AS 2 on Valuation of Inventories, inventories should be valued at the lower of cost and
net realizable value. Inventories should be written down to net realizable value on an item-by-item
basis in the given case.
Items Historical Cost Net Realisable Value Valuation of Closing
( in Rs Lakhs) ( in Rs Lakhs) Stocks ( in Rs Lakhs)
A 40 28 28
B 32 32 32
C 16 24 16
88 84 76
Hence, closing stock will be valued at Rs. 76 lakhs.

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 Course: Financial Statement Reporting and Analysis
Question 2. Sony Pharma ordered 12,000 kg. of certain material at Rs.80 per unit. The purchase price
includes excise duty Rs. 4 per kg in respect of which full CENVAT credit is admissible. Freight incurred
amounted to Rs. 77,400. Normal transit loss is 3%. The company actually received 11,600 kg. and
consumed 10,100 kg. of material. Compute cost of inventory under AS 2 and abnormal loss.
Answer:
Particulars Amount (Rs)
Purchase Price ( 12,000 kg x Rs 80) 9,60,000
Less: CENVAT Credit ( 12,000kg xRs 4) 48,000
9,12,000
Add: freight 77400
Total Material Cost 9,89,400
Number of units after Normal Loss of 3% = 97% of 12,000 kgs 11,640 kgs
Normal Cost Per Kg = ( 989400/11640) Rs 85
Therefore, Value of closing stock under AS 2 = (11,600 kgs. – 10,100 kgs.) × Rs. 85
= Rs.1, 27,500
Abnormal loss = (11,640 kgs. – 11,600 kgs.) × Rs.85 = Rs.3,400

Question 3. HP is a leading distributor of petrol. A detail inventory of petrol in hand is taken whenthe
books are closed at the end of each month. At the end of month following information is available:
Sales Rs. 47,25,000
General overheads cost Rs. 1,25,000
Inventory at beginning 1,00,000 litres @ 15 per litre
Purchases:
June 1 two lakh litres @ 14.25
June 30 one lakh litres @ 15.15
Closing inventory 1.30 lakh litres
Compute the following by the FIFO as per AS 2:
1. Value of Inventory on June, 30.
2. Amount of cost of goods sold for June.
3. Profit/Loss for the month of June.

Answer:
1. Cost of Closing Inventory for 1,30,000 liters as on 30 th June
1,00,000 litres @ Rs 15.15 15,15,000
30,000 litres @ Rs. 14.25 4,27,500
Total 19,42,500

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 Course: Financial Statement Reporting and Analysis
2. Calculation of Goods Sold
Opening Inventories ( 1,00,000 litres @Rs 15) 15,00,000
Purchases :
1st June – ( 2,00,000 litres @ Rs 14.25) 28,50,000
30th June- ( 1,00,000 litres @ Rs 15.15) 15,15,000
58,65,000
Less : Closing Inventories ( As Per Ans 1) 19,42,500
Cost of Goods Sold 39,22,500

3. Calculation of Profit
Sales ( Given) 47,25,000
Less- Cost of Goods Sold : 39,22,500
General Overheads : 1,25,000 40,47,500
Profit 6,77,500

Question 4. In the books of Optic Fiber Ltd., plant and machinery stood at Rs.6,32,000 on 1.4.2013.
However on scrutiny it was found that machinery worth Rs.1,20,000 was included in the purchases on
1.6.2013. on 30.6.2013 the company disposed a machine having book value of Rs.1,89,000 on 1.4.2013
at Rs.1,75,000 in part exchange of a new machine costing Rs.2,56,000. The company charges
depreciation @ 20% WDV on plant and machinery. You are required to calculate as per AS 6:
(i) Depreciation to be charged to P/L
(ii) Book value of Plant and Machinery A/c as on 31.3.2014
(iii) Loss on exchange of machinery.
Answer:
1.Depriciation Charged as per AS 6 in Profit & Loss Account
Rs
Depreciation on Old Machinery 31,600
[20% on Rs 6,32,000 for 3 months ( 1.04.2013 to
30.06.2013)]
Add : Depreciation Machinery acquired on 01.06.2013 20,000
[ Rs. 1,20,000x20%x10/12]

Add : Depreciation on Machinery after adjustment of 1,04,850

exchange
[ 20% of (6,32,000-1,89,000+2,56,000) for 9 months
Total Depreciation to be charged in Profit & Loss A/C 1,56,450
2. Book Value of Plant and Machinery as on 31.03.20014
Balance as per books on 01.04.2013 6,32,000

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 Course: Financial Statement Reporting and Analysis
Add : Included in Purchases on 01.06.2013
1,20,000 3,76,000
Add : Purchase on 30.06.2013
2,56,000
10,08,000
Less : Book Value of Machine sold on 30.06.2013 (1,89,000)
8,19,000
Less : Depreciation on Machinery in Use (1,56,450-9,450) (1,47,000)
Book Value as on 31.03.2014 6,72,000
3. Loss on Exchange of Machinery
Book value of Machinery as on 1.04.2013 1,89,000
Less : Depriciation for 3 months 9450
W.D.V as on 30.06.2013 1,79,550
Less : Exchange Value 1,75,000
Loss on Exchange of Machinery 4,550

Question 5. ABC Ltd has purchased a machine amount of Rs1000000 in the year of 2008-09. For which
Rs.500000 was paid at the time of purchase and balancing still payable to supplier. The supplier waived
off this balance in the year 2011-12. ABC Ltd treated it as income and credited to P & L A/c in the year
2011-12. State your view whether treatment given by company is according to AS-10 or not?
Answer:
According to Accounting Standard – 10 Accounting of Fixed Assets any subsequent change in price of
assets on account of exchange fluctuation, price adjustment or discount & change in duties should be
adjusted to fixed asset only. So that treatment given by the company is not as per AS-10. Rs.500000
should be deducted from the cost of machine.

Question 6. Mention six areas in which different accounting policies are followed by Companies.
Answer:
Areas in which different accounting policy can be adopted
1. Method of depreciation, depletion and amortisation.
2. Valuation of investment
3. Valuation of fixed asset
4. Treatment of goodwill
5. Treatment of retirement benefit

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 Course: Financial Statement Reporting and Analysis
6. Conversion of foreign currency.
Other areas in which accounting policy can be adopted
1. Treatment of expenditure during construction.
2. Valuation of inventories.
3. Treatment of contingent liabilities.
4. Recognition of profit on long term contract.

Question 7. What are the items that are to be excluded in determination of the cost of inventories as
per AS-2?
Answer:
Para 13 of AS-2 Valuation of Inventories lists down the specific costs which are to be excluded from
cost of inventories. The list is as follows:
1. Abnormal amounts of wasted materials, labour or other production cost.
2. Storage costs, unless those costs are necessary in the production process prior to a further
production stage.
3. Administrative overheads that do not contribute to bringing the inventories to their present location
and condition; and
4. Selling and distribution costs.
As per Para 12, Interest and other borrowing costs are usually considered as not related to bringing the
inventories to their present location and condition and are therefore usually not included in the cost of
inventory.
1. Cost of Purchase: Includes Purchase Price + Taxes & Duties (which are not subsequently
recoverable) + other expenditure directly attributable to acquisition (like freight inward) BUT
EXCLUDES Trade Discount, Rebates, Duty Drawbacks, Subsidiaries and Taxes (which are
subsequently recoverable)
2. 2. Cost of Conversion: Includes Direct Labour, Direct Expenses, Sub Contracted work and
Production Overheads absorbed on the basis of Normal Capacity.
3. 3. Other Costs incurred in bringing the inventories to their present location and condition. e.g.
cost incurred in designing products for specific customers.

Question 8. M/s. Son Ltd. charged depreciation on its assets on SLM basis. In the year ended 31st
March, 2011 it changed to WDV basis. The impact of the change when computed from the date of the
assets putting into use amounts to 18 lakhs being additional depreciation. Discuss, when should an
enterprise change method of charging depreciation and how it should be dealt with in Profit and Loss
A/c

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 Course: Financial Statement Reporting and Analysis
Answer:
According to AS 10 “Property Plant and Equipment”, an enterprise can change one method of
depreciation to another method only if the adoption of the new method is required by statue or for
compliance with an accounting standard or if it is considered that the change would result in a more
appropriate preparation or presentation of the financial statements of the enterprise. When such a
change in the method of depreciation is made, depreciation should be recalculated in accordance with
the new method from the date of the asset coming into use. The deficiency or surplus arising from
retrospective re-computation of depreciation in accordance with the new method should be adjusted
in the accounts through statement of profit and loss in the year in which the method of depreciation is
changed. In case the change in the method results in deficiency in depreciation in respect of past years,
the deficiency should be charged in the statement of profit and loss.

Question 9. “In determining the cost of inventories, it is appropriate to exclude certain costs and
recognize them as expenses in the period in which they are incurred.” Provide example of such costs as
per AS-2: Valuation of Inventories.
Answer:
As per AS- 2 ‘Valuation of Inventories’, cost of inventories includes all costs of purchase, cost of
conversion and other costs incurred in bringing the inventories to their present location and condition.
However, certain costs are excluded from the cost of the inventories and are recognised as expenses in
the period in which incurred. Following are some of the examples of such cost:
(i) Selling and distribution costs.
(ii) Administrative overheads that do not contribute to bringing the inventories to their present
location and condition; and
(iii) Abnormal amount of wasted materials, labour, or other production costs.
(iv) Storage costs, unless those costs are necessary in the production process prior to a further
production stage.

Question 10. What are depreciable assets as per Accounting Standard-10? Explain why AS 10 does not
apply to Land. Also state the factors which considered for determine the useful life of an Asset.
Answer:
Meaning of Depreciable Assets as per AS - 10, ‘Property, Plant and Equipment.’ Depreciable Assets are
assets which:
1. Are expected to be used during more than one accounting period;
2. Have a limited useful life;
Some are held by an enterprise for use in the production or supply of goods and services, for rental to
others or for administrative purpose and not for the purpose of sale in the ordinary course of business.

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Land is not depreciated as per the accounting standard, because it does not fulfil all requirements of
depreciable asset under accounting standard i.e. its useful life is unlimited.
Useful life of an asset is the expected utility of an asset to the entity. The factors which should be
considered while determining the useful life of an asset are as follows: –
1. Expected usage of an asset.
2. Expected capacity or output.
3. It’s expected physical wear and tear.
4. Expected technical and commercial obsolescence due to change in the market demand,
improvement in production etc.
5. Legal or similar limits on the use of an asset. For Example Expiry of the lease agreement.

Question 11. From the following data, find out value of inventory as on 30.04.2009 using (a) LIFO
method, and
(b) FIFO method:
(1) 01.04.2009 Purchased 10 units @ Rs. 70 per unit
(2) 06.04.2009 Sold 6 units @ Rs.90 per unit
(3) 09.04.2009 Purchased 20 units @ Rs. 75 per unit
(4) 18.04.2009 Sold14 units @ Rs. 100 per unit.
Answer:
(a) Statement showing valuation of Closing Inventory by LIFO Method
Date Receipts Issue Balance
Unit Cost/unit Amount Unit Cost/unit Amount Unit Cost/unit Amount
1.4.09 10 70 700 10 70 700
6.4.09 6 70 420 4 70 280
9.4.09 20 75 1500 4 70 280
20 75 1500
18.4.09 14 75 1050 4 70 280
6 75 450

Value of Closing Inventory as per LIFO method

Unit Rate Total
4 Rs 70 Rs 280
6 Rs 75 Rs 450

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 Course: Financial Statement Reporting and Analysis
Total Rs 730

(b) Statement showing valuation of Closing Inventory by FIFO Method

Date Receipts Issue Balance
Unit Cost/unit Amount Unit Cost/unit Amount Unit Cost/unit Amount
1.4.09 10 70 700 10 70 700
6.4.09 6 70 420 4 70 280
9.4.09 20 75 1500 4 70 280
20 75 1500
18.4.09 4 70 280 10 75 750
10 75 750

Value of Closing Inventory as per FIFO method

Unit Rate Total

10 Rs 75 Rs 750

Question 12. Raw materials inventory of a company includes certain material purchased at Rs. 100 per
kg. The price of the material is on decline and replacement cost of the inventory at the year end is Rs.
75 per kg. It is possible to convert the material into finished product at conversion cost of Rs.125.
Decide whether to make the product or not to make the product, if selling price is
(i) 175 and
(ii) Rs. 225. Also find out the value of inventory in each case.
Answer:
Provision: According to Para 24 of AS 2 ‘Valuation of Inventories’, materials and other supplies held for
use in the production of inventories are not written down below cost if the finished products in which
they will be incorporated are expected to be sold at or above cost. But when there has been a decline
in the price of materials and it is estimated that the cost of the finished products will exceed net
realizable value, the materials are written down to net realisable value. Analysis and Conclusion: In
such circumstances, the replacement cost of the materials may be the best available measure of their
net realisable value.
(i) When the selling price be Rs. 175
Incremental Profit= Rs. 175 - Rs. 125 = Rs.50
Current price of the material = Rs. 75
Therefore, it is better not to make the product. Raw material inventory would be valued at
net realisable value i.e. Rs. 75 because the selling price of the finished product is less than
Rs. 225 (100 + 125) per kg.

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 Course: Financial Statement Reporting and Analysis
(ii) When the selling price be Rs. 225
Incremental Profit = Rs. 225 - Rs. 125 = Rs. 100
Current price of the raw material = Rs. 75
Therefore, it is better to make the product. Raw material inventory would be valued at Rs.
100 per kg because the selling price of the finished product is not less than Rs. 225.
Question 13. A company installed a plant at a cost of Rs. 20 lacs with estimated useful life of 10 years
and decided to depreciate on straight line method. In the fifth year company decided to switch over
from straight line method to written down value method. Compute the resultant surplus/deficiency if
any, and state how will you treat the same in the accounts with the provisions as per AS 10.
Answer:
Table showing depreciation under Straight Line Method (SLM) and depreciation under Written Down
Value Method (WDV)
Year Depreciation ( in Rs Lakh) SLM Depreciation ( in Rs Lakh) WDV

I 2.00 Note 1 2.00 Note 2

II 2.00 1.80
III 2.00 1.62
IV 2.00 1.46
Total 8.00 6.88
Resultant surplus on change in method of depreciation from SLM to WDV = (8.00 – 6.88) Rs. 1.12 lakhs.
Provision:
• According to AS 10 Property, Plant and Equipment, when a change in the method of depreciation
is made, depreciation should be re-calculated in accordance with the new method from the date of
the asset put to use.
• The deficiency or surplus arising from retrospective re-computation of depreciation in accordance
with the new method should be adjusted in the accounts in the year in which the method of
depreciation is changed.
Analysis and Conclusion:
• In the given question, surplus amounting Rs. 1.12 lakhs (8.00 – 6.88) should be credited to profit
and loss statement in the fifth year. Such a change should be treated as a change in accounting
policy and its effect should be quantified and disclosed as per AS 5. “Net Profit loss for the period,
prior period items and changes in Accounting Policies
Note 1: Depreciation as per SLM Rs. 20 lakhs/10 years = 2 lakhs.
Note 2: Depreciation rate under SLM is 10% (2,00,000/20,00,000 × 100). It is assumed that
depreciation rate will remain same under WDV method also.

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Module 2
Financial Statement Reporting – I: Preparation of Financial Statement – Profit & Loss, Balance sheet (as
per Companies Act 2013)
CO2: Students shall be able to prepare the financial statement and calculate Profit & Loss of a firm at
the end of the financial year.

Question 1. Activa Ltd., Ajmer was incorporated with a Nominal Capital of Rs.20, 00,000 divided into
20,000 Equity shares of Rs.100 each. The following ledger balances have been extracted from their
books as on 31st March, 2018.
Particulars Amount Particulars Amount
Share Capital Debenture Redemption Reserve 1,40,000
Fully Called-up Equity shares of Provision for gratuity 13,000
Rs.100 each 15,00,000 Vehicles 1,00,000
Outstanding Salary 7,000 Security Deposits (Dr.) 80,000
Land 4,80,000 Trade Receivables 2,86,000
Trademarks 35,000 6% Debentures 3,00,000
Investment Allowance Reserve 25,000 Goodwill 75,000
Trade Payables 75,000 Bank Balance with Current Account 27,000
Fixed Deposits (Cr.) 1,00,000 Other Income received in advance 3,000
Provision for taxation 30,000 Development Rebate Reserve 1,20,000
Current Investment in shares 10,000 Unclaimed Dividends 6000
Long term loan from Central Govt. 90,000 Proposed Dividends 29,000
Cash On Hand 5,700 Buildings 3,20,000
Deposit with custom Authorities 3,200 Cash-Credit & Overdraft from Bank
Calls in Arrears 12,000 (Short –Term) 20,000
Bills Payable 14,000 Investment in Trust Securities 3,40,000
Bills Receivable 6,800 Insurance Carried Forward 3,100
Plant & Equipment 5,70,000 Profit & Loss Account (Surplus) 70,000
Interest accrued on investment 6,000 Furniture & Fixtures 1,30,000
Capital Work-In –Progress 54,000 Loan to Director 5,900
Stock-In Trade 43,000 Preliminary Expenses 5,000
Margin Money 7,300 Demand Deposits from Banks 45,000
Stores & Spares 7,000 Share Premium 25,000
Additional Information:
a. The long term loan taken from Central Government is secured by a charge on Plant &
Equipment.
b. 6% Debentures have been issued by creating a floating charge on the assets of the Company.
You are required to prepare a Balance Sheet of Activa Ltd., Ajmer as at 31st March,2018 as per revised
schedule VI to the Companies Act,1956.

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Solution 1:
In the Books of Activa Ltd., Ajmer Balance sheet as at 31st March, 2018
(In Vertical Form as prescribed under Part I of Revised Schedule VI to the Companies Act,1956)
Particulars Note No. Amount
I. EQUITY AND LIABILITIES
1) Shareholder’s Funds
a. Share Capital 1 14,88,000
b. Reserves and Surplus 2 3,80,000
c. Money received against Share Warrants
2) Share Application Money Pending allotment
3) Non-Current Liabilities
a) Long-Term Borrowings 3 4,90,000
b) Deferred Tax Liabilities (Net)
c) Other Long-Term Liabilities
d) Long Term Provisions
4) Current Liabilities
a) Short-Term Borrowings 4 65,000
b) Trade Payables 75,000
c) Other Current Liabilities 5 30,000
d) Short-Term Provisions 6 72,000
26,00,000
II. ASSETS
1) Non-Current Assets
a) Fixed Assets
i) Tangible Assets 7 16,00,000
ii) Intangible Assets 8 1,10,000
iii) Capital Work-In-Progress 54,000
iv) Intangible Assets under Development
v) Fixed Assets held for sale
b) Non –Current Investments 9 3,40,000
c) Deferred Tax Assets (Net)
d) Long-Term Loans and Advances 10 80,000
e) Other Non-Current Assets 11 5,000
2) Current Assets
a) Current Investments 12 10,000
b) Inventories 13 50,000
c) Trade Receivables 2,86,000
d) Cash and Cash Equivalents 14 40,000
e) Short – Term Loans and Advances 15 19,000
f) Other Current Assets 16 6,000
26,00,000

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Notes to Accounts
1) Share Capital
Particulars Amount
a) Authorised Share Capital: 20,00,000
20,000 Equity Shares of Rs.100 each
b) Issued and Subscribed Capital:
15,000 Equity shares of Rs.100 each fully called –up 15,00,000
Less: Calls-In-Arrears (12,000)
Total 14,88,000
2) Reserves and Surplus
Particulars Amount
a) Investment Allowance Reserve 25,000
b) Share Premium 25,000
c) Debenture Redemption Reserve 1,40,000
d) Development Rebate Reserve 1,20,000
e) Profit and Loss Account (Surplus) 70,000
Total 3,80,000
3) Long-Term Borrowings
Particulars Amount
a) Fixed Deposit (Cr.) 1,00,000
b) Long Term Loan from Central Government 90,000
(secured by charge on Plant & Equipment)
c) 6% Debentures 3,00,000
Total 4,90,000
4) Short-Term Borrowings
Particulars Amount
a) Cash-Credit & Overdrafts from Bank (Short-term) 20,000
b) Demand Deposits from Bank 45,000
Total 65,000
5) Other Current Liabilities
Particulars Amount
a) Outstanding Salary 7,000
b) Bills Payable 14,000
c) Other Income Received in advance 3,000
d) Unclaimed Dividend 6,000
Total 30,000
6) Short-Term Provisions
Particulars Amount
a) Provision for taxation 30,000
b) Provision for Gratuity 13,000
c) Proposed Dividends 29,000
Total 72,000
7) Tangible Assets
Particulars Amount
a) Land 4,80,000

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b) Plant & Equipment 5,70,000
c) Vehicles 1,00,000
d) Buildings 3,20,000
e) Furniture & Fixtures 1,30,000
Total 16,00,000
8) Intangible Assets
Particulars Amount
a) Trademarks 35,000
b) Goodwill 75,000
Total 1,10,000
9) Non-current Investments
Particulars Amount
Investment in Trust Securities 3,40,000
Total 3,40,000
10) Long-Term Loans and Advances
Particulars Amount
Security Deposits (Dr.) 80,000
Total 80,000
11) Other Non-Current Assets
Particulars Amount
Preliminary Expenses 5,000
Total 5,000
12) Current Investments
Particulars Amount
Current Investment in shares 10,000
Total 10,000
13) Inventories
Particulars Amount
a) Stock –in-trade 43,000
b) Stores & Spare Parts 7,000
Total 50,000
14) Cash and Cash Equivalents
Particulars Amount
a) Cash in Hand 5,700
b) Margin money 7,300
c) Bank Balance with Current Account 27,000
Total 40,000
15) Short-Term Loans and Advances
Particulars Amount
a) Deposit with Custom Authorities 3,200
b) Bills Receivable 6,800
c) Loan to Director 5,900
d) Insurance carried forward 3,100
Total 19,000
16) Other Current Assets
Particulars Amount
Interest accrued on Investments 6,000
Total 6,000

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 Course: Financial Statement Reporting and Analysis

Question 2. The following ledger balances have been extracted from the books of Bokaro Ltd.,Bandra
as at 31st March,2018.
Particulars Amount Particulars Amount
Share transfer fees received 1,650 Wages to shop floor supervisor 6,300
Operating Revenues (Miscellaneous) 40,300 Sales Department Rent 5,300
Raw material purchases 1,42,430 Sales Return 11,000
Bank Interest (Cr.) 4,000 Motive Power 7,400
Administrative Salaries 39,400 Carriage on purchases 12,880
Purchases of Stock-In-Trade 1,680 Repairs to factory buildings 9,100
Contribution to Provident Fund 11,000 Insurance 3,600
Turnover : (Sales of Products) Interest on Investments 15,400
i) Cash 1,17,300 Rates and Taxes 4,200
ii) Credit 5,23,700 Staff Welfare Expenses 10,000
Diwali Bonus to Employees 9,600 Interest on Debentures 11,100
Interest on Bank Overdraft 7,900 Commission Earned 1,050
Discount from Suppliers 300 Office on cost 1,600
Other Borrowing Costs 2,100 Miscellaneous Expenses 6,720
Depreciation on Vehicles 6,000 Returns to Suppliers 4,690
Excise Duty –Sale of products 20,300 Dividend on shares 5,000
Consumption of stores & spares 2,800 Interest received on Fixed Deposits 5,600
Directors Fees 7,700
Prepare a statement of Profit and Loss for the year ended 31 st March,2018 in vertical form as
prescribed under part II of revised schedule VI to the Companies Act, 1956 after taking into
consideration the following additional information.
a) The stock position of different types of inventories were as under:
Types of Inventories As on 31st March, 2017 As at 31st March,2018
i) Raw materials 20,690 11,310
ii) Finished Goods 19,730 21,530
iii) Work-in-progress 13,910 15,930
iv) Stock-in-trade 7,460 9,140
b) Depreciation on Plant and Equipment (Book Value Rs.5, 00,000, Written down value Rs.3,
00,000) to be provided @8% p.a.as per Diminishing Balance Method.
c) Income Tax to be provided @50% of profits.

Solution:
In the books of Bokaro Ltd., Bandra Statement of Profit and Loss for the year ended 31st March, 2018
(In Vertical Form as prescribed under Part II of Revised Schedule VI to the Companies Act, 1956)
Particulars Note Amount
No.
A. CONTINUING OPERATIONS
1) Revenue from Operations (Gross) 1 6,70,300

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 Course: Financial Statement Reporting and Analysis
Less : Excise Duty (20,300)
Revenue from Operations (Net) 6,50,000
2) Other Income 2 33,000
3) Total Revenue (1 + 2) 6,83,000
4) Expenses
a) Cost of materials consumed 3 1,60,000
b) Purchases of stock-in-trade 1,680
c) Changes in Inventories of finished goods, work- 4 5,500
in-progress and Stock-in-trade
d) Employee Benefit Expenses 5 84,000
e) Finance Costs 6 21,100
f) Depreciation and Amortisation Expenses 7 30,000
g) Other Expenses 8 40,720
Total Expenses 3,43,000
5) Profit/ (Loss) before exceptional and extraordinary
items and tax (3-4) 3,40,000
6) Exceptional Items
7) Profit/ (Loss) before extraordinary items and tax ( 5 3,40,000
+/-6)
8) Extraordinary Items
9) Profit before Tax (7+/-8) 3,40,000
10) Tax Expenses
a) Current tax expenses for current year 1,70,000
b) Less : MAT credit (where applicable)
c) Current tax expense relating to prior years
d) Net current tax expense
e) Deferred tax
11) Profit/ (Loss) from Continuing Operations (9+/-10) 1,70,000
Notes to Accounts
1) Revenue from Operations
Particulars Amount
a) Turnover 6,30,000
i. Cash 1,17,300
ii. Credit (+) 5,23,700
Total sale of products 6,41,000
Less : Sales Return (11,000)
b) Operating Revenue (Miscellaneous) 40,300
Total 6,70,300
2) Other Income
Particulars Amount
a) Interest Income
i. Interest on investments 15,400
ii. Interest received on Fixed Deposit 5,600
iii. Bank Interest (Cr.) (+)4,000 25,000
b) Dividend Income
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 Course: Financial Statement Reporting and Analysis
i. Dividend on shares 5,000
c) Other Non-operating Income 5,000
i.) Share transfer fees received 1,650
ii.) Discount from Suppliers 300
iii.) Commission Earned (+)1,050
3,000
Total 33,000
3) Cost of Materials Consumed
Particulars Amount
a) Cost of Materials Consumed:
Stock of Materials as on 31st March, 2017 20,690
Add: Raw material purchases 1,42,430
Add: Cartage on Purchases (+) 12,880
1,76,000
st
Less : Stock of Raw Materials as on 31 March 2018 (11,310)
Less : Returns to suppliers (4,690) 1,60,000
Total 1,60,000
4) Changes in Inventories of Finished Goods, Work-In-Progress and Stock-In-Trade
Particulars Amount
Inventories st st
31 March,2017 31 March,2018 Change
i)Finished Goods 19,730 21,530 1,800
ii)Work-In-Progress 13,910 15,930 2,020
iii)Stock-in-trade 7,460 9,140 1,680 5,500
Total 5,500

5) Employee Benefit Expenses

Particulars Amount
a) Administrative Salaries 39,400
b) Contribution to Provident Fund 11,000
c) Diwali Bonus to Employees 9,600
d) Directors Fees 7,700
e) Wages to Shop Floor Supervisor 6,300
f) Staff Welfare Expenses 10,000
Total 84,000
6) Finance Cost
Particulars Amount
a) Interest Expenses
i) Interest on Bank Overdraft 7,900
ii) Interest on Debentures 19,000
(+)11,100 2,100
b) Other Borrowing Cost
Total 21,100
7) Depreciation and Amortisation Expenses
Particulars Amount
a) Depreciation on Plant & Equipment 24,000
(@8% p.a.as per diminishing balance method.
8% of written down value Rs.3,00,000)
b) Depreciation on vehicles 6,000
Total 30,000
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8) Other Expenses
Particulars Amount
a) Consumption of Stores and Spares 2,800
b) Motive Power 7,400
c) Sales Dept. Rent 5,300
d) Repairs to factory buildings 9,100
e) Insurance 3,600
f) Rates & Taxes 4,200
g) Office on cost 1,600
h) Miscellaneous Expenses 6,720
Total 40,720

Question 3. Cifco Ltd.,Chembur was registered with an Authorised Capital of Rs.5,00,000 divided into
5,000 equity shares of Rs.100 each. The Trial Balance as on 31 st March, 2018 is as follows:
Debit Balances Amount Credit Balances Amount
Purchases 2,53,000 Sales 5,09,000
Trade Investments 25,000 Profit & Loss Account balance on 1 st 35,000
Business Premises 1,80,000 April,2018
Raw materials Stock as on 1 st Deposits from Public (Unsecured) 14,700
April,2018 11,900 Interest on trade Investments 2,500
Freight Outward 4,800 Unclaimed Dividend 3,300
Salaries and Wages 64,400 Trade Payables 1,04,000
Motor Vehicles 40,000 Share Capital 3,50,000
Staff Welfare Expenses 9,100 Acceptances 18,900
Repairs to Buildings 17,300 Rent Payable 8,000
Cash in Hand 8,500 8% Debentures 50,000
Bank Balance with current account 29,600 Pension Fund 13,000
Sales Returns 9,000 Dividend Equalisation Fund 25,000
Trade Receivables 1,80,000 Provision for Employee Benefits 6,500
Freight Inward 5,100 Purchase Returns 13,000
Bills Receivable 30,300 Sundry Income received in advance 300
Furniture & Fixtures 50,000 Capital Reserve 7,500
Contribution to Pension Fund 2,000 Other Operating Revenue 10,000
Bad Debts 3,100 Debenture Redemption Reserve 11,000
Power & Fuel 9,300 Miscellaneous Income Received 2,700
Goodwill 40,000 Bank Overdraft 14,600
Insurance 13,100 Bank Interest 1,000
Plant 2,00,000
Rent & Taxes 8,000
Underwriter’s Commission 6,000
Interest receivable on Investment 500
12,00,000 12,00,000

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Adjustments:
a) Stock of raw material as on 31st March, 2018 amounted to Rs.17,000.
b) Interest on Debentures is outstanding for the year.
c) Provide depreciation @5% p.a. on Business Premises and Motor Vehicles as per Straight Line
Method.
d) Provision for bad and doubtful debts is to be made @5% on trade receivables.
e) The directors proposed a dividend of 8% on Equity paid –up capital.
f) Provide Rs.21,100 for taxation.
You are required to prepare a statement of Profit and Loss for the year ended 31 st March,2018 and a
Balance Sheet as on that date as per the revised schedule VI to the Companies Act,1956.

Solution
In the books of Cifco Ltd,.Chembur
Balance Sheet as at 31st March, 2018
(In Vertical Form as prescribed under Part II of Revised Schedule VI to the Companies Act, 1956)
Particulars Note No. Amount
I. EQUITY AND LIABILITIES
1) Shareholders’ Funds
a) Share Capital 1 3,50,000
b) Reserves & Surplus 2 1,50,500 6
c) Money received against share warrants
2) Share Application Money Pending Allotment
3) Non-current Liabilities
a. Long-Term Borrowings 3 68,700
b. Deferred Tax Liabilities (Net)
c. Other Long-Term Liabilities
d. Long-Term Provisions
4) Current Liabilities
a. Short-Term Borrowings 4 14,600
b. Trade Payables 1,04,000
c. Other Current Liabilities 5 30,500
d. Short-Term Provisions 6 68,600
Total 7,86,900
II. ASSETS
1) Non-Current Assets
a) Fixed Assets
i) Tangible Assets 7 4,59,000
ii) Intangible Assets 8 40,000
iii) Capital Work-In-Progress
iv) Intangible Assets under development
v) Fixed assets held for sale
b) Non-Current Investments 9 25,000
c) Deferred Tax Assets (Net)
d) Long-Term Loans and Advances
e) Other Non-Current Assets 10 6,000

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2) Current Assets
a) Current Investments
b) Inventories 11 17,000
c) Trade Receivables 12 1,71,000
d) Cash & Cash Equivalents 13 38,100
e) Short –Term Loans and Advances 14 30,300
f) Other Current Assets 15 500
Total 7,86,900

Statement Of Profit and Loss for the year ended 31 st March,2018

(In Vertical Form as prescribed under Part II of Revised Schedule VI to the Companies Act, 1956)
Particulars Note No. Amount
A. CONTINUING OPERATIONS
1) Revenue from Operations (Gross) 16 5,10,000
Less :Excise Duty
Revenue from Operations (Net) 17 5,10,000
2) Other Income 6,200
3) Total Revenue (1+2) 5,16,200
4) Expenses
a) Cost of material consumed 18 2,40,000
b) Purchases of stock-in trade
c) Changes in Inventories of finished goods, work-
in-progress, and stock-in –trade
d) Employee Benefit Expenses 19 75,500
e) Finance Costs 20 4,000
f) Depreciation and Amortisation Expenses 21 11,000
g) Other Expenses 22 64,600
Total Expenses 3,95,100
5) Profit/ (Loss) before exceptional and extraordinary 1,21,100
items and tax (3-4)
6) Exceptional Items
7) Profit/ (Loss) before extraordinary items and tax ( 5 1,21,200
+/-6)
8) Extraordinary Items
9) Profit before Tax (7+/-8) 1,21,200
10) Tax Expenses
a) Current tax expenses for current year 21,100
b) Less : MAT credit (where applicable)
c) Current tax expense relating to prior years
d) Net current tax expense
e) Deferred tax
11) Profit/ (Loss) from Continuing Operations (9+/-10) 1,00,000 1
Notes to Accounts
1) Share Capital
Particulars Amount
a) Authorised Capital: 5,00,000
5,000 Equity shares of Rs.100 each
b) Issued and Subscribed Capital :
3,500 Equity shares of Rs.100 each fully called-up and paid-up 3,50,000

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Total 3,50,000

2) Reserves and Surplus

Particulars Amount
a) Profit and Loss Account (surplus) (WN 1) 1,07,000 4
b) Dividend Equalisation Fund 25,000
c) Capital Reserve 7,500
d) Debenture Redemption Reserve 11,000
Total 1,50,500 5
3) Long-Term Borrowings
Particulars Amount
a) 8% Debentures 50,000 54,000
Add: Outstanding Interest on Debentures (+) 4,000
(8% x Rs.50,000)
b) Deposits from Public (unsecured) 14,700
Total 68,700
4) Short-Term Borrowings
Particulars Amount
Bank Overdraft 14,600
Total 14,600
5) Other Current Liabilities:
Particulars Amount
a) Unclaimed Dividend 3,300
b) Acceptances 18,900
c) Rent Payables 8,000
d) Sundry Income Received in Advance 300
Total 30,500
6) Short-Term Provisions
Particulars Amount
a) Pension Fund 13,000
b) Provision for Employee Benefits 6,500
c) Proposed Dividend @8% on Equity Paid-up Capital 28,000
d) Provision for taxation 21,100
Total 68,600
7) Tangible Assets
Particulars Amount
a) Business Premises 1,80,000
Less : Depreciation @5% p.a.as per SLM (9,000) 1,71,000
b) Motor Vehicles 40,000
Less : Depreciation @5% p.a.as per SLM (2,000) 38,000
c) Furniture & Fixtures 50,000
d) Plant 2,00.000
Total 4,59,000
8) Intangible Assets
Particulars Amount
Goodwill 40,000
Total 40,000

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9) Non-Current Investments
Particulars Amount
Trade Investments 25,000
Total 25,000
10) Other Non-Current Assets
Particulars Amount
Underwriters Commission 6,000
Total 6,000

11) Inventories
Particulars Amount
Stock-In-Trade 17,000
Total 17,000
12) Trade Receivables
Particulars Amount
Trade Receivables 1,80,000
Less : Provision for Bad & Doubtful Debts @5% 9,000 1,71,000
Total 1,71,000
13) Cash & Cash Equivalents
Particulars Amount
a) Cash in hand 8,500
b) Bank Balance with current account 29,600
Total 38,100
14) Short-Term Loans and Advances
Particulars Amount
Bills Receivable 30,300
Total 30,300
15) Other Current Assets
Particulars Amount
Interest Receivable on Investment 500
Total 500
16) Revenue From operations
Particulars Amount
a) Sales 5,09,000 5,00,000
Less: Sales Returns (9,000)
b) Other Operating Revenues 10,000
Total 5,10,000
17) Other Income
Particulars Amount
a) Interest Income
i)Interest on trade investments 2,500
ii)Bank Interest (+)1,000 3,500
b) Dividend Income
c) Other Non-operating income
i)Miscellaneous income received 2,700 2,700
Total 6,200

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18) Cost of Materials Consumed

Particulars Amount
a) Cost of Materials Consumed
Raw Materials Stock as on 1st April,2017 11,900
Add: Purchases 2,53,000
Add: Freight Inward 5,100
2,70,000
Less : Purchases Returns (13,000)
st
Less: Raw materials stock as on 31 March,2018 (17,000) 2,40,000
Total 2,40,000

19) Employee Benefit Expenses

Particulars Amount
a) Salaries & wages 64,400
b) Staff Welfare Expenses 9,100
c) Contribution to Pension Fund 2,000
Total 75,500
20) Finance Costs
Particulars Amount
a) Interest Expenses
i)Outstanding interest on Debentures @ 8% p.a. 4,000
Total 4,000
21) Depreciation and Amortization Expenses
Particulars Amount
a)Depreciation on Business Premises @5% p.a as per SLM 9,000
b)Depreciation on Vehicles @5% p.a as per SLM 2,000
Total 11,000
22) Other Expenses
Particulars Amount
a) Freight Outward 4,800
b) Repairs to Buildings 17,300
c) Bad Debts 3,100
d) Power & Fuel 9,300
e) Insurance 13,100
f) Rent & Taxes 8,000
g) Provision for bad & doubtful debts @ 5 % 9,000
Total 64,600

Working Notes:
Profit and Loss Account Amount
Profit & Loss Account Balance on 1st April, 2017 35,000
Add: Profits for the year as per statement of Profit & Loss 1,00,000 2
1,35,000
Less: Proposed Dividends @8% on Equity paid up capital (28,000)
(8% x Rs.3,50,000)
Profit & Loss Account (Surplus) 1,07,000 3

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Question 4. The following Trial Balance for the year ended 31st March, 2018 is extracted from the
books of Domino Ltd. Delhi.
Trial Balance as on 31st March, 2018
Particulars Debit Credit
Discount on Issue of 7% Mortgage Debentures 2,000
Patents and Copyrights 18,000
Audit Fees 8,500
Salary of Establishment Staff 12,800
Furniture, Fixtures and Fittings 1,47,500
Trade Receivables 55,000
Expenses on Employees Stock Option Scheme 7,000
Capital Work-In-Progress 9,400
Purchases of Raw Materials 81,900
Buildings 2,32,000
Cash in Hand 8,700
Investment in 6% Government Securities 40,000
st
(Purchased on 1 April,2017 with a face value Rs.50,000)
Additions to furniture as on 1st April,2017 2,500
Repairs to Buildings 3,000
st
Stock of Raw Materials on 1 April,2017 9,750
Electric Power 4,600
Office Rent 11,100
Interest on 7% Mortgage Debentures 5,000
Wages to Production Staff 37,500
Cash at Bank 17,000
Factory Insurance 4,800
Investment in Equity Shares 20,000
(250 Equity shares of Rs.100 each, Rs.80 called up and fully paid up)
Other Income receivables 1,800
Plant & Equipments 2,50,000
Loose Tools 7,500
Octroi and Duty on Purchases 2,350
Petty Cash 300
Share Transfer Fees 600
Share Capital (Called-up and Fully paid-up):
3,000 equity shares 3,00,000
1,000 Preference Shares 1,00,000
Interest on 6% Govt.securities 2,400
Sales Less Returns 3,22,000
Dividend Equalisation Reserve 30,000
Bank Interest 1,700
Returns outward 2,100

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Salary and Wages Payable 5,900
General Reserve 30,000
Dividend on shares 2,000
Profit & Loss Account balance on 1st April,2017 29,900
Investment Fluctuation Fund 20,000
Fixed Deposits 16,600
7% Mortgage Debentures Hidden entry W.Note3 1,00,000
Other Operating Revenue 18,000
Sundry Income 1,500
Trade Payables 17,300
10,00,000 10,00,000
You are required to consider the following further information:
a) The Authorised Capital of the company is Rs.8, 00,000 divided into 6,000 Equity shares of Rs.100
each and 2,000, Preference shares of Rs.100 each. B/SL1a
b) Of the Debtors Rs.15, 000 were outstanding for more than six months. All Book Debts are
unsecured but are considered to be good except a debt of Rs.5, 000. W.Note4
c) The market value of 6% Government Securities as on the date of Balance Sheet was Rs.35, 000. P/LA2
d) Discount on issue of 7% Mortgage Debentures to be written off by 70%.B/SA1e
e) Transfer Rs. 19,900 to General Reserve. B/SL1b, P/LA/c OR W. Note1,2
f) Depreciate furniture @ 10% p.a. B/SA1a(i), P/LA4f
g) Stock of Raw Materials on 31st March, 2018 amounted to Rs.11, 900. B/SA2b
h) Provision for taxation is to be made at Rs.30,500 of net profit. B/SL4d, P/L10a
Prepare a Statement of Profit and Loss for the year ended 31st March,2018 and a Balance Sheet as on
that date as per the revised Schedule VI to the Companies Act,1956.

Solution:
In the Books of Domino Ltd. Delhi
Balance Sheet as at 31st March, 2018
(In Vertical Form as prescribed under Part II of Revised Schedule VI to the Companies Act, 1956)
Particulars Note No. Amount
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
a. Share Capital 1 4,00,000
b. Reserves & Surplus 2 2,29,900 6
c. Money received against share warrants
2. Share Application Money Pending Allotment
3. Non-current Liabilities 3 1,18,600
a. Long-Term Borrowings
b. Deferred Tax Liabilities (Net)
c. Other Long-Term Liabilities
d. Long-Term Provisions
4. Current Liabilities 17,300 Correction 2row
a. Short-Term Borrowings 4 5,900 down trade payables

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b. Trade Payables 5 30,500
c. Other Current Liabilities
d. Short-Term Provisions
Total 8,02,200
III. ASSETS
2) Non-Current Assets
a) Fixed Assets 6 6,17,000
i) Tangible Assets 7 18,000
ii) Intangible Assets 9,400
iii) Capital Work-In-Progress
iv) Intangible Assets under development
v) Fixed assets held for sale 8 60,000
b) Non-Current Investments
c) Deferred Tax Assets (Net)
d) Long-Term Loans and Advances 9 600
e) Other Non-Current Assets
2) Current Assets 10 19,400
a) Current Investments 11 50,000
b) Inventories 26,000
c) Trade Receivables 12
1,800
d) Cash & Cash Equivalents 13
e) Short –Term Loans and Advances
f) Other Current Assets
Total 8,02,200

Statement Of Profit and Loss for the year ended 31 st March,2018

(In Vertical Form as prescribed under Part II of Revised Schedule VI to the Companies Act, 1956)
Particulars Note Amount
No.
A. CONTINUING OPERATIONS
1. Revenue from Operations (Gross) 14 3,40,000
Less :Excise Duty
Revenue from Operations (Net)
2. Other Income 15 8,200
3. Total Revenue (1+2) 3,48,200
4. Expenses
a. Cost of material consumed 16 80,000
b. Purchases of stock-in trade
c. Changes in Inventories of finished goods, work-
in-progress, and stock-in –trade
d. Employee Benefit Expenses 17 57,300
e. Finance Costs 18 15,500

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f. Depreciation and Amortisation Expenses 19 15,000
g. Other Expenses 20 29,900
Total Expenses 1,97,700
5. Profit/ (Loss) before exceptional and extraordinary
items and tax (3-4) 1,50,500
6. Exceptional Items
7. Profit/ (Loss) before extraordinary items and tax ( 5
+/-6) 1,50,500
8. Extraordinary Items
9. Profit before Tax (7+/-8) 1,50,500
10. Tax Expenses
f) Current tax expenses for current year 30,500
g) Less : MAT credit (where applicable)
h) Current tax expense relating to prior years
i) Net current tax expense
j) Deferred tax
11. Profit/ (Loss) from Continuing Operations (9+/-10) 1,20,000 1
Notes to Accounts
1) Share Capital
Particulars Amount
a) Authorised Capital:
i) 6,000 Equity shares of Rs.100 each 6,00,000
iii) 2,000 Preference shares of Rs.100 each + 2,00,000 8,00,000
b) Issued and Subscribed Capital :
i)3,000 Equity shares of Rs.100 each fully called-up and paid-up 3,00,000
ii) 1,000 Pref shares of Rs.100 each fully called-up and paid-up 1,00,000 4,00,000
Total 4,00,000
2) Reserves and Surplus
Particulars Amount
a) Profit and Loss Account (surplus) 1,30,000 4
b) Dividend Equalisation Reserve 30,000
c) General Reserve 49,900
d) Investment Fluctuation Fund 20,000
Total 2,29,900 5
3) Long-Term Borrowings
Particulars Amount
a) 7% Mortgage Debentures 1,00,000
Add: Outstanding Interest on 7% Mortgage Debentures (+) 2,000 1,02,000
b) Fixed Deposits 16,600
Total 1,18,600

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4) Other Current Liabilities

Particulars Amount
Salary and Wages Payable 5,900
Total 5,900
5) Short-Term Provisions
Particulars Amount
Provision for taxation 30,500
Total 30,500
6) Tangible Assets
Particulars Amount
a. Buildings 2,32,000
b. Furniture, Fixtures & Fittings 1,47,500
st
Add: Additions to furniture as on 1 April,2017 2,500
Less: Depreciation @10% p.a. on Rs.1,50,000 15,000 1,35,000
c. Plant and Equipment 2,50.000
Total 6,17,000
7) Intangible Assets
Particulars Amount
Patents & Copyrights 18,000
Total 18,000
8) Non-Current Investments
Particulars Amount
a) Investment in 6% Govt. Securities 40,000
(purchased on 1st April,2017)
• Face Value Rs.50,000
• Market Value Rs.35,000
b) Investment in Equity Shares 20,000
(250 Equity shares of Rs.100 each Rs.80 called-up and fully paid-up)
Total 60,000
9) Other Non-Current Assets
Particulars Amount
Discount on issue of 7% Mortgage Debentures 2,000
Less: 70% written off (1,400) 600
Total 600
10) Inventories
Particulars Amount
Loose Tools 7,500
Stock of Raw Materials 11,900
Total 19,400

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11) Trade Receivables

Particulars Amount
Trade Receivables 50,000
i. Outstanding for more than 6 months 15,000
ii Others + 40,000
Less : Provision for Bad & Doubtful Debts @5% (5,000)
Total 50,000
12) Cash & Cash Equivalents
Particulars Amount
a. Cash in hand 8,700
b. Cash at Bank 17,000
c) Petty cash 300
Total 26,000

13) Other Current Assets

Particulars Amount
Other Income Receivable 1,800
Total 1,800
14) Revenue From operations
Particulars Amount
a. Sales less Returns 3,22,000
b. Other Operating Revenues
18,000
Total 3,40,000
15) Other Income
Particulars Amount
a. Interest Income
i)Interest on 6% Govt.securities 2,400
ii)Bank Interest (+)1,700 4,100
b. Dividend Income
Dividend on shares 2,000 2,000
c. Other Non-operating income
i.Share transfer fees 600
ii. Sundry Income +1,500 2,100
Total 8,200
16) Cost of Materials Consumed
Particulars Amount
a) Cost of Materials Consumed 80,000
Raw Materials Stock as on 1st April,2017 9,750
Add: Purchases 81,900
Add: Octroi and Duty on purchases 2,350

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94,000
Less : Purchases Returns (2,100)
st
Less: Raw materials stock as on 31 March,2018 (11,900)
Total 80,000
17) Employee Benefit Expenses
Particulars Amount
a. Salary to Establishment Staff 12,800
b. Expenses on Employee Stock Option Scheme 7,000
c. Wages of production staff 37,500
Total 57,300
18) Finance Costs
Particulars Amount
a. Audit Fees 8,500
b. Interest on 7% Mortgage Debentures 5,000
c. Outstanding interest on 7% Mortgage Debentures 2,000
Total 15,500
19) Other Expenses
Particulars Amount
a. Repairs to Buildings 3,000
b. Discount on issue of 7% Mortgage Debenture written off 1,400
c. Electric Power
d. Factory Insurance 4,600
e. Office Rent 4,800
f. Provision for bad & doubtful debts 11,100
5,000
Total 29,900
20) Contingent Liabilities and Commitments: (to the extent not provided for)
Uncalled liability on investments in equity shares amounted to Rs.5,000
(250 Equity shares x Rs.20 uncalled) payable on partly paid shares.
Working Notes:
1) General Reserve
General reserve Balance as on 1st April, 2017 30,000
Add: Transfer to General Reserve 19,900
49,900
2) Profit and Loss Account
Profit and Loss Account Balance on 1st April,2017 29,900
Add: Profits for the year as per statement of profit & loss 1,20,000 2
1,49,900
Less: Transfer to General Reserve 19,900
1,30,000 3
3) Outstanding Interest on 7% Mortgage Debentures:
Under Long-Term Borrowings 7% Mortgage Debentures are issued for Rs.1,00,000

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 Course: Financial Statement Reporting and Analysis
On which total interest payable for the year 2017-18 will be Rs.7,000. Out of which Rs.5,000 are paid
during the year, hence outstanding interest on 7% Mortgage Debentures will be amounting to Rs.2,000
and adjusted accordingly.
4) Provision for Bad and Doubtful Debts:
Out of total debtors all book debts amounting to Rs.55,000 are unsecured but are good for recovery
purpose except a debt of Rs.5,000. Hence the debt of Rs.5,000 are assumed to be doubtful of recovery
and needs a separate provision for bad and doubtful debts. Therefore, provision for doubtful debts is
required to be made for Rs.5,000.

Question 5. Given the Trial Balance and adjustments of a company as a manager of a Company you
need to prepare the financial statement and also calculate firm’s is gaining profit or loss for current the
year for the year ended 31st March, 2012
Mehul Company Ltd.
Trial Balance as at 31st March, 2012
Particulars Amt Particulars Amt
Stock 68,000 Equity Shares Capital
Furniture & Fixtures 50,000 (Shares of Rs.10 each) 2,50,000
Discount 4,000 11% Debentures 50,000
Loan to Directors 8,000 Bank Loans 64,500
Advertisement 2,000 Bills Payable 12,500
Bad Debts 3,500 Creditors 15,600
Commission 12,000 Sales 4,26,800
Purchases 2,31,900 Rent Received 4,600
Plant and Machinery 86,000 Transfer Fees 1,000
Rentals 2,500 Profit & Loss Appropriation
Current Account 4,500 Account 13,900
Cash 800 Provision for Depreciation on
Interest on Bank Loan 11,600 Plant & Machinery 14,600
Preliminary Expenses 1,000
Wages 90,000
Consumables 8,400
Freehold Land 1,54,600
Tools and Equipments 24,500
Goodwill 26,500
Debtors 28,700
Bills Receivables 15,300
Dealer Aids 2,100
Transit Insurance 3,000
Trade Expenses 7,200
Distribution Freight 5,400
Debentures Interest 2,000
8,53,500 8,53,500
Additional Information: -

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 Course: Financial Statement Reporting and Analysis
P/LA4c, Closing stock as on 31st march, 2012, 82,300 - Depreciation on furniture & fixtures @5%, Freehold
B/SA2b
land @2% and Tools and Equipment @5% to be provided. B/SA1a(i), P/LA4f

Solution:
Profit and Loss Account of Mehul Company Ltd. for the year ended on 31st March, 2012
Particular Notes Amt
I Revenue from Operations 4,26,800
II Other Receipts 8 5,600
III Total Revenue (I + II) 4,32,400
IV Expenses
Purchase of Stock in Trade 9 2,31,900
Change in Inventories of Finished Goods 10 (14,300)
Employee Benefit Expenses 90,000
Other Operating Expenses 11 48,100
Selling and Administrative Expenses 12 2,000
Finance Costs 13 13,600
Depreciation and Amortization Expenses 14 6,817
Total Expenses 3,78,117
Profit (Loss) for the Period (III-IV) 54,283 1
V Balance from Previous Years 13,900
Profit (Loss) carried to Balance Sheet 68,183

Balance Sheet of Mehul Company Ltd. as on 31st March, 2012

Particulars Index Amt

I Equity and Liabilities
Shareholders’ Fund
Share Capital 1 2,50,000
Reserve and Surplus 2 68,183 4
Non-Current Liabilities
Long Term Liabilities 3 1,14,500
Current liabilities
Trade Payables
4 28,100
TOTAL 4,60,783

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 Course: Financial Statement Reporting and Analysis
II Assets
Non-Current Assets
Fixed Assets
Tangible Fixed Assets 5 2,93,683
Intangible Assets (Goodwill) 26,500
Current Assets
Inventories 82,300
Trade Receivables 28,700
Cash and Cash Equivalents 6 5,300
Short Term Loan and Advances 7 23,300
Other Current Assets (Preliminary Expenses) 1,000
TOTAL 4,60,783
Notes to the Financial Statements
1.Share Capital – Amount
Equity Share Capital Authorised
Share Capital 25,000 equity shares of Rs.10 each 2,50,000
Issued and Subscribed 25,000 equity shares of Rs.10 each 2,50,000
Total 2,50,000

2. Reserve and Surplus – Amount

Balance as per last Balance Sheet 13,900
Add : Balance in Current Year Profit 54,283 2
Total 68,183 3

3. Long Term Borrowings Amount

Rs.11% Debentures of Rs.100 50,000
each 64,500
Bank Loan
Total 1,14,500

4. Trade Payables Amount

Sundry Creditors 15,000

Bills Payable 12,500
Total 28,100

5 .Tangible Assets Book Value Depreciation Net value

Freehold Land and Building 1,54,600 3,092 1,51,508
Furniture and Fixtures 50,000 2,500 47,500
Plant and Machinery 86,000 14,600 71,400
Tools and Equipments 24,500 1,225 23,275
Total 3,15,100 14,600 2,93,683

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 Course: Financial Statement Reporting and Analysis
6.Cash and Cash Equivalents Amount
Cash at Bank 4,500
Cash in Hand 800
Total 5,300

7. Short Term Loans and Advances Amount

Loan to Directors 8,000

Bills Receivables 15,300
Total 23,300

8. Other Receipts Amount

Rent Received 4,600
Transfer Fees 1,000
Total 5,600

9. Purchase of Stock in Trade: Amount

Purchase 2,31,900
10. Change in Inventories of Finished Goods
Closing Stock 82,300
Less : Opening Stock 68,000
Total (14,300)

11. Other Operating Amount

Expenses
Consumables 8,400
Bad Debts 3,500
Discount 4,000
Rentals 2,500
Commissions 12,000
Dealer’s Aid 2,100
Transit Insurance 3,000
Trade Expenses 7,200
Distribution Freight 5,400
Total 48,100

12. Selling and Administrative Expenses Amount

Advertisements 2,000
Total 2,000

13. Finance Costs Amount

Interest on Bank Charges 11,600

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 Course: Financial Statement Reporting and Analysis
Debenture Interest 2,000
Total 13,600

14. Depreciation and Amortization Expenses Amount

Freehold Land and Building 3,092
Furniture and Fixtures 2,500
Tools and Equipments 1,225
Total 6,817

Question 6. Given the trial balance of a company, an account manager needs to prepare statement of
profit & loss Account and balance sheet for the year ended 31 st March, 2015 to know the company
current financial status.
Particulars Debit Credit
Equity share capital - 3,00,000
Retained earning - 1,60,000
Land 70,000 -
Building at cost 98,000 -
Accumulated Depreciation-Building - 19,600
Equipment at Cost 1,40,000 -
Inventory 89,000 -
Purchases 6,10,000 -
Discount received - 10,000
Discount allowed 1,45,000 -
Sales - 11,00,000
Sales return 1,75,000 -
Bills receivable 1,10,000 -
Bills payable - 70,000
Trade debtors 1,06,000 -
Trade creditors - 49,000
Accumulates Depreciation-Equipment - 28,000
Salaries payable - 18,000
Rent Received - 18,000
Salaries to staff 2,32,000 -
Repair & maintenance 19,000 -
Electricity 80,000 -
Interim cash dividend 30,000 -
Provision for doubtful Debts - 6,000
Selling Expenses 14,000 -
Frieght Inward 20,000 -
Bond Payable - 1,00,000
Profit on sale of Land - 25,000

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 Course: Financial Statement Reporting and Analysis
Cash And cash equivalent 2,53,600 -
Total 19,03,600 19,06,300
Additional Information:
1. The company was incorporated with an authorized capital of Rs. 10,00,000 dividend into
equity shares of Rs 10/- Each. B/SL1a
2. Inventory as at 31st March, 2015 was Rs 64,000. B/SA2b, P/LA4c
3. Depreciation is to be charged as follows: B/SA1a(i), P/LA4f
(a) Building at 5% using reducing balance method;
(b) Equipment at 20% using straight line method.
4. The company had issued bonds on 1st October, 2014.The interest is payable half yearly on
1st April and 1st October. The rate of interest is 12% P.A. P/LA4e, B/SL4c
5. Final Dividend of Rs. 15,000 was declared on 31st March, 2015. P/LA4e . B/SL1b
6. Income tax rate is 35%. Ignore corporate dividend tax. P/L10a, B/SL4d
You are required to prepare:
(i) A statement of profit and losses for the year ended 31st March, 2015.
(ii) A Balance Sheet on the same date

Solution:
Statement of profit and loss for the year ended 31st March, 2015
Particulars Note No. Amt
I Revenue from operation 1 10,82,500
II Other Income 2 53,000
III Total Revenue 11,35,500
IV Expenses:
Purchase of stock in trade 3 6,30,000
Changes of inventories of finished goods 25,000 Op St 89,000
(-)Cl St 64,000
Employee Benefits Expenses 2,32,000
(=) 25,000
Finance cost (1,00,000*12% for ½ year) 6,000
Depreciation and amortization expenses 4 31,920
Other expenses 5 1,27,500
Total Expenses 10,52,420
V Profit before tax (III-IV) 83,080
VI Tax Expenses 29,078
Current Tax (35%vof 83,080)
Deferred Tax
VII Profit (loss) for the period (V-VI) 54,002 1
VIII Earning per equity share (Profit / No. of Equity Shares 1.80
54,002 /30,000)
Balance Sheet of P.Ltd as at 31st March, 2015
Particulars Note No. Amount
I Equity And Liabilities
Share holders fund

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 Course: Financial Statement Reporting and Analysis
Share capital 6 3,00,000
Reserve and surplus 7 1,69,002 4
Money received against share warrants
II Non-current Liabilities:
Long term borrowing-12% Bonds 1,00,000
III Current Liabilities
Short term borrowing
Trade payables 8 1,19,000
Other current liabilities 9 39,000
Short term provisiom 29,078
IV Total 7,56,080
V Assets
VI Non-Current Assets
Fixed Assets
Tangible Assets 10 2,28,480
VII Current Assets
Current Investment
Inventories 64,000
Trade receivables 11 2,10,000
Cash & cash equivalents 2,53,600
Total 7,56,080

Working Notes:
Note No Particulars Amount
1 Revenue for operation
Sales 11,00,000
Less: sales Return 17,500
Total 10,82,500
2 Other Income
Rent received 18,000
Discount received 10,000
Profit on sale of land 25,000
Total 53,000
3 Purchases of stock
Purchases 6,10,000
Add: freight inward 20,000
Total 6,30,000
4 Calculation of Depreciation
Building at cost 98,000
Less: accumulated depreciation 19,600
Written down value on 1.4.2014 78,400
Depreciation=78400*5%=3920

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 Course: Financial Statement Reporting and Analysis

Equipment=140000*20%=28000
Total Depreciation=3920+28000=31920
5 Other Expenses
Repair 19,000
Electricity 80,000
Selling expenses 14,000
Discount allowed 14,500
Total 1,27,500
6 Share Capital
Authorised Capital:
100000 Equity shares of Rs 10 each 10,00000
Issued, subscribed and paid-up Capital:
30000 Equity shares of Rs 10 each fully paid 3,00,000
7 Reserve and surplus
Retained earning 1,60,000
Add: current Year’s profit 54,002 2
2,14,002
Less: Dividend Paid (30000+15000) 45,000
Total 1,69,002 3
8 Trade Payable
Trade creditors 49,000
Bills payable 70,000
Total 1,19,000
9 Other current liabilities
Salaries payable 18,000
Dividend payable 15,000
Interest on bond payable 1,00,000 @12% 6mon 6,000
Total 39,000
10 Fixed Assets
Tangible assets
Land 70,000
Building 98,000
Less: accumulated depreciation (19,600 + 3,920) 23,500 23,520 74,480
Equipment at cost 1,40,000
Less: Accumulated Depreciation (28,000 + 28,000) 56,000 84,000
2,28,480
11 Trade Receivable
Trade debtors 1,06,000
Less: provision for bad debts 6,000 100000
Bills Receivable 110000
210000

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 Course: Financial Statement Reporting and Analysis
Question 7. On 31st March 2015 the following balance appeared in the books of the Alfa hotels ltd:
Debit Amt Credit Amt
Interest on debenture 60,000 12% mortgage debenture 5,00,000
Rates and taxes 18,000 Share capital 40,00,000
Stock of provision on 1.4.2014 2,50,000 General reserve 5,00,000
purchases of provision 25,00,000 Unclaimed dividend 15,000
Salaries and wages 9,50,000 Provision for bad debts 50,000
Provident fund contribution 30,000 Trade creditors 2,50,000
Miscellaneous Expenses 50,000 Expenses owing 80,000
Bonus 24,000 Visitors credit balance 10,000
Loss on foreign currency Staff provident fund 7,50,000
transaction 15,000 Profit and loss account 81,000
Land 1,50,0000 Income from board and lodging
Building 50,00,000 Miscellaneous receipt 51,00,000
Furniture and fitting 15,00,000 Accumulated Depreciation 65,000
Linen, crockery, glassware, cattery 3,20,000 Account:
and utensils Building
Trade debtors 3,50,000 Furniture etc. 20,00,000
Prepaid expenses 25,000 Linen, crockery etc. 10,00,000
Advance against purchase of 1,80,000
building 15,00,000
Cash in hand 15,000
Balance at Bank 4,74,000
Total 1,45,81,000 Total 14581000
After taking the following information in to account, prepare the company’s Balance Sheet as on 31 st
March 2015 and the statement of profit and loss for the year ended:
1) Stock of provision on 31st March 2015 was valued at Rs. 30,00,000 P/LA4c, B/SA2b
2) Provide for depreciation: P/LA4f, B/SA1a(i)
Rs. 10,00,000 on furniture and fitting
Rs. 20,000 on linen, crockery etc.
3) Make a provision for taxation Rs. 4,00,000 P/L10a, B/SL4d
4) The director decide to recommend a dividend at 10% on the paid up capital of the company and
transfer the remaining balance on profit and loss account on general reserve. B/SL1b, B/SL4d
5) The entire paid up on share capital of the company consist of fully paid equity share at Rs 10
each. Sh Cap. 40,00,000/Rs.10 = No. of Eq.Sh 4,00,000

Solution: This problem has been solved after taking corporate dividend tax @ 17%. B/SL1b, B/SL4d
Statement of profit and loss of Alfa Hotels ltd for the year ended 31st march, 2015
Particulars Note No. Amt
I Revenue from operation 51,00,000
II Other income 65,000
III Total revenue 51,65,000
Expenses

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 Course: Financial Statement Reporting and Analysis
Cost of material consumed
Purchase of stock in trade 25,00,000
Changes in inventories of finished goods, work in Op.St 2.50.000
progress and stock in trade (50,000) - Cl.St. 3,00,000
= - 50,000
Employee benefit expenses 1 10,04,000
Finance costs 2 75,000
Depreciation and amortization expenses 3 1,20,000
Other expenses 4 68,000
IV Total expenses 37,17,000

V Profit before Tax (III-IV) 14,48,000

VI Current Tax 4,00,000
VII Profit (Loss) for the Period.(V-VI) 10,48,000 1
VIII Earning per equity Share: Profit / No. of Equity Share 2.62
10,48,000 /4,00,000

Balance Sheet of Alfa Hotels Ltd. as on 31st March, 2015

Particulars Notes Amt
No.
1 Equity and Liabilities
Share Capital 6 40,00,000
Reserve and surplus 7 11,65,000 4
Money received against share warrant 11,61,000
Share Application Money Pending Allotment:
Non Current Liabilities
Long term borrowing
Differed Tax Liabilities 8 5,00,000
Other long term liabilities
Long term provision 9 7,50,000
Current Liabilities
Short term Borrowing
Trade payables 10 2,50,000
Other current liabilities 11 1,05,000
Short term provision 12 8,64,000 8,68,000
Total 76,34,000
Assets
Non Current Assets
Fixed Asset 13 50,20,000
Long Term loan and Advance 14 15,00,000

Current Asset
Inventories 3,00,000
Trade Receivable 15 3,00,000
Cash and cash equivalents 16 4,89,000
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 Course: Financial Statement Reporting and Analysis
Other current Assets 17 25,00,000
Total 76,34,000

Notes to Accounts:
Notes Particulars Amount
1 Employees Benefit Expenses
Salaries and wages 9,50,000
P.F contribution 30,000
Wages Bonus 24,000
10,04,000
2 Finance Cost
Interest and debenture 60,000
Loss on foreign Currency Transaction 15,000
75,000
3 Depreciation
Depreciation on Furniture 1,00,000
Depreciation on Linen, crockery etc. 20,000
1,20,000
4 Other Expenses
Misc Expenses 50,000
Rates And Taxes 18,000
5 Earnings Per Share
Profit after Tax
Weighted Average No. of Equity Share
2.62
=1048000 /
400000
=Rs 10 2.62
6 Share Capital
4000000 equity share of Rs 10 Each 40,00,000
7 Reserve & Surplus
General Reserve
Opening Balance 5,00,000
ADD: Transfer from Surplus 6,61,000 *
11,61,000 3
Surplus:
Opening balance 81,000
Add: Net profit of the current Year 10,48,000 2
Balance available for appropriation 11,29,000
Less Appropriation Proposed Dividend 4,00,000 (Share Capital 40,00,000@10%)
Less: Corporation Dividend Tax @ 17% 68,000 (Dividend 4,00,000@17%)
Less: Transferred To general Reserve 6,61,000 *
6,61,000
NIL
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 Course: Financial Statement Reporting and Analysis
8 Long Term Borrowing
12% Mortgage Debenture 5,00,000
9 Long term Provision
Staff Provident Fund 7,50,000
10 Trade Creditors 2,50,000
11 Other current Liabilities
Visitors Current balance 10,000
Expenses owing 80,000
Unclaimed Dividend 15,000
1,05,000
12 Short term provision
Provision for taxation 4,00,000
Proposed dividend 4,00,000
Corporate Dividend Tax 64,000
8,64,000
13 Fixed Assets
Tangible 15,00,000
Land Building 50,00,000
Less Depreciation 20,00,000 30,00,000
Furniture and fitting 15,00,000
Less: Depreciation 11,00,000 4,00,000
Linen, Crockery etc. 3,20,000
Less: Depreciation(Accum1,80,000 + new20,000)2,00,000 1,20,000
50,20,000
14 Long term loans and advances
Advance against Purchase Of building 15,00,000
15 Trade Receivable
Trade Debtors 3,50,000
Less: Provision for Debts 50,000
3,00,000
16 Cash in Hand 15,000
Cash at bank 4,74,000
4,89,000
17 Other current Assets
Prepaid Expenses 25,000

Question 8. The following trail balance related to Air Bag Co. Ltd as on 31 March, 2015
Particulars Debit Amt. Credit Amt.
(in Rs. Lakhs) (in Rs. Lakhs)
Equity Share Capital ( 10 per share) - 56
5% Debentures (secured) - 5.00
Land 10.00 -

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 Course: Financial Statement Reporting and Analysis
Building 40.00 -
Accumulated Depreciation on Building - 8.00
Plant 53.00 -
Accumulated Depreciation on Plant - 29.00
Investment property 30.00 -
Inventory(1.4.2014) 28.00 -
Trade Receivable 41.00 -
Trade Payable - 39.00
Cash and Cash Equivalents 10.60 -
Long term Advance 14.40 -
Retained Earnings(1.4.2014) - 41.35
Dividend paid (including tax) 0.80 -
Interest paid 0.25 -
Sales - 157.00
Purchases 91.40 -
Salary to Staff 14.00 -
Electricity 1.00 -
Repairs and Maintenances 1.00 -
335.35 335.35
Additional Information
1) Inventory at 31st march, 2015 is r 33,90,000. In include damages items that had a cost rs 50,000. 5,50,000
These would require remedial work costing rs 2,00,000 before these could be sold for an estimated
price of rs 4,50,000 P/LA4c, B/SA2b P/LA1a P/LA4g
2) sales proceeds of an item of plant that was sold in January 2015 for 300000 is included in the sales
.the cost of the plant is rs 1000000 and it had been depreciated by r400000at the date of its sale. No
other accounting entries for the disposal of the plant have been made. other than recording the P/LA4f
B/SA1a(i)
proceed in sales and cash all plants are depreciated @25% p a under reducing balance method.
3) On 1st April, 2014 the land was valued at rs 1200000. The directors wish this value to be in corporate
in to the financial statement. The company charges 2% depreciation on cost of building using straight
line method. P/LA4f. B/SA1a(i)
4) The company adopts the fair value model for investment property .its value at 31 march, 2015 has
been assessed by a qualified surveyor at rs 2000000 P/LA4g
5) The depreciation for the year to 31 march 2015 has not yet been accounted for the drafts financial
statement.
6) The directors have estimated the provision for income tax for the year ended 31 st march 2015 at rs
150000 P/L10a, B/SL4d
You are required to prepare:
1) A statement of profit and loss for the year ended on 31 march2015
2) A balance sheet a on that date.

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 Course: Financial Statement Reporting and Analysis
Solution:
Income Statement of Air Bag co. Ltd for the year ended 31/03/2015
Particulars Note no. Figures for the
current
reporting
period (r in
lakhs)
Revenue from operations (1) 154
Other income -

Total Revenue (I+II) 154

Expenses:
Purchases of stock in trade 91.40
Changes the inventories of finished Good (2.90)
Employs Benefits Expenses 14.00
Finance costs 0.25
Depreciation and Amortization (5) 5.30
Other Expenses (7) 14.90
Total Expences 122.95
Profit before exceptional and extraordinary items and Tax 31.05
(III-IV)
Exceptional items -
Profit before extraordinary items and Tax(V-VI) 31.05
Extraordinary items -
Profit beforeTax (VII-VIII) 31.05
Tax Expenses
1) Current Tax 1.50
Profit (loss)for the period (IX-X) 29.55 1
Earnings per equity share :(Basic and Diluted) R5.28
Profit / No. of Equity Share
29.55 /5.6 =5.276
Balance sheet of air bag co ltd as at 31 march 2015
Particular Note No. Amount
R in lakhs
EQUITY AND LIABILITIES
1).shareholders’ funds:
a) share holders (10) 56.00
b). Reserves and surplus (11) 72.10 4
c)money received against share warrants -
Share application money pending allotment
Non-current Liabilities
Long-term Borrowing -5%Debentures 5.00
Current Liabilities

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 Course: Financial Statement Reporting and Analysis
Short-term Borrowing Trade Payables 39.00
Trade Payables Short Term Provisions - Tax 1.50
Total 173.60

Assets Amount
Non-current Assets :
Fixed assets
!) Tangible Assets (12) 76.70
Long-term loans and advances 14.40
Current assets :
Currents investment (2) -
Inventories 30.90
Trade receivables 14.00 41.00
Cash and Cash Equivalents 10.60
Total 173.60

Working Notes:
Revenue from operation Rs in lakhs
Sales 157.00
Less : sales proceeds of plants 3.00
154.00
Value of closing inventory
Value of inventory before adjustment 33.90
Less costs of damaged goods 5.50
28.40
Add: net realizable value of damage good
Estimate selling price 4.50
Less: cost of rework 2.00 2.50
30.90

3) Change in Inventories of finished goods

Opening inventories 28.00
Less closing inventories 30.90
Change (2.90)
4) Employee Benefits Expenses
Salaries to Staff 14.00

Calculation of Depreciation
1) On Plant 53.00
Cost 29.00
Less : Accumulated Depriciation 24.00
W.D.V. on plant Sold (Rs. 10lakhs-4 lakhs) 6.00
18.00

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 Course: Financial Statement Reporting and Analysis
Current Depreciation =25%of Rs. 18lakh=Rs. 4.5lakhs
II) On building 40.00
III) Less: Accumulated Depreciation 8.00
32.00

Current Depreciation =2%of Rs. 40lakhs= Rs.0.80lakhs

Total Depreciation to be charge to be statement of profits and loss
On plant 4.50lakhs
On building 0.80lakhs
5.30lakhs
6) Loss On sale Plant
WDV of plant sold 6.00lakhs
Less : sale Proceed of plant 3.00lakhs
3.00lakhs

7) other Expenses Rs in Lakhs

Loss on sale of plant 3.00
Electricity 0.90
Repairs and Maintenance 1.00
Loss on investment property (30,00,000-20,00,000) 10.00
14.90
8) Value of land after Revalution
Opening Balance 10.00
Add; Revolution Gain 2.00
12.00
9) Revalution Reserve =Rs. 2.00lakhs

10) Share Capitals

Authorized capital ?
? Equity Shares of Rs. lakhs ?
? Preference shares of ? each ?

Issued subscribe and paid up capital

5,60,000 equity shares of Rs. 10each 56.00

11) Reserve and surplus

Retained earning
Opening Balance on 1.4.2014 41.35
ADD: Current Profit 29.25 2
70.90
Less: Dividend Paid 0.80
70.10
Revaluation Reserve-Land (Note 9) 2.00
72.10 3

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 Course: Financial Statement Reporting and Analysis
12) Fixed Assets
Tangible Assets
Land 12.00
Investment property 20.00
Plant at cost (53-10) cost 53 - sold 10 43.00
Less Depreciation (29-4+4.5) 29.55 29.50
Acc dep 29.00
- dep on sold plant 4.00 13.50
+ current dep 4.50
Building at Cost = 29.50 40.00
Less: Depreciation Acc dep 8.00 8.80
+ current dep 0.80 31.20
= 8.80 76.70

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 Course: Financial Statement Reporting and Analysis
Module 3
Financial Statement Reporting – II: Cash Flow Analysis – introduction, Meaning, features, objectives,
importance, concept of cash and cash equivalents, cash flow from operating activities, investment
activities & financing activities. Preparation of Cash Flow Statement (as per Companies Act 2013)

CO3: Given the financial statements a student will be able to Prepare Cash Flow statement to
evaluate whether a firm is doing well financially and has sufficient cash to meet its obligations and
support its growth or not.

Proforma of Cash Flow Statement as per AS-3

DIRECT METHOD
Cash flow Statement of ——————for the period ended ———————
Particulars Rs. Rs.
A Cash Flow From Operating Activities:-
Net profit before tax and extraordinary items xxx
Adjustment for :-
Depreciation xxx
interest income xxx
Dividend income xxx
Interest expenses xxx
Foreign exchange loss xxx xxx
Operating profit before working capital changes xxx
Adjustment for changes in current assets and current liabilities:-
(+) xxx
a) increase in current liabilities
xxx
b) decrease in current assets
(-) xxx
a) decrease in current liabilities
xxx xxx
b) increase in current assets

Income tax paid xxx

Cash flow before extraordinary items xxx
Extraordinary items xxx
Net Cash From Operating Activities xxx
B Net cash flow from investing activities:-
Purchase of fixed assets xxx
Proceeds from sale of fixed assets xxx
Interest and dividend received xxx xxx
Net cash from investing activities xxx
C Net cash flow from financing activities:-
Proceeds from issue of shares/ Debentures xxx
Proceeds from long term borrowings xxx
Re-payment of long term borrowings xxx
Interest paid xxx

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 Course: Financial Statement Reporting and Analysis
Dividend paid xxx xxx
Net cash from investing activities financing xxx
Net increase or decrease in cash and cash equivalents:-
cash and cash equivalents at the beginning of the period xxx
cash and cash equivalents at the end of the period xxx

Cash Flow Statement Numerical

Question 1. From the following Balance Sheets of XYL Limited, Prepare Cash Flow Statement and also
evaluate the financial performance of XYL Ltd:
Particulars Note No. 31.03.2018 31.03.2017
I ) Equity and Liabilities : Amount Amount
Shareholder’s Funds :
1
a) Share Capital FA +50,000 5,00,000 4,50,000
b) Reserve & Surplus 1 1,18,000 70,000
Current Liabilities
a) Trade Payables + CL 24,000 99,000 75,000
b) Short Term Provisions 2 1,00,000 82,000
Total 8,17,000 6,77,000
II. Assets :
Non-Current Assets :
(a) Fixed Assets
(i) Tangible Assets 3 3,70,000 2,80,000
(ii) Intangible Assets 4 90,000 1,15,000
(2) Current Assets :
(a) Inventory CA -32,000 1,09,000 77,000
(b) Trade Receivables CA -50,000 2,30,000 1,80,000
(c) Cash & Cash Equivalents 18,000 25,000
Total 8,17,000 6,77,000

Notes:
Note 31.03.2018 31.03.2017
Particulars
No. Amount Amount
Reserve & Surplus:
1 General Reserve P/L +30,000 70,000 40,000
Profit & Loss Balance A,/C OR Note 48,000 30,000
Total 1,18,000 70,000
2 Short Term Provisions:

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 Course: Financial Statement Reporting and Analysis
Provision for Taxation A/C 50,000 40,000
Proposed Dividend proposed P/L+50,000 50,000 42,000 paid
FA-
Total 1,00,000 82,000
Tangible Assets :
3 Land & Building *IA- A/C 1,70,000 2,00,000
Plant *IA- A/C 2,00,000 80,000
Total 3,70,000 2,80,000
Intangible Assets :
4
Goodwill OA 25,000 90,000 1,15,000
Total 90,000 1,15,000
Additional Information:-
a) Depreciation of Rs. 10,000 & Rs. 20,000 has been charged on plant, land & Building respectively.
OA , A/C
b) An interim dividend of Rs 20,000 has been paid. FA-, P/L
c) Income Tax of Rs 35,000 has been paid.OA-, P/L
d) Rent Received during the year Rs 10,000 OA-, FA+
Solution:
Cash flow Statement
A Cash Flow From Operating activities:-
Profit before tax(Working Note1) 1,63,000
Adjustment for non cash and non operating items:-
(+) depreciation in plant 10,000
depreciation on land and building 20,000
goodwill written off 25,000 55,000
2,18,000
(-) Rent received 10,000
Operating Profit before working capital changes 2,08,000
(+) Increases in current liabilities
Trade Payables 24,000
2,32,000
(-) Increase in current assets
Inventory 32,000
trade receivables 50,000 82,000
Cash generated from operating activities 1,50,000
(-) Income tax paid 35,000
Cash flows from Operating activities 1,15,000
B Cash Flow From Investing activities:-
sale of land and building 10,000
purchase of plant -1,30,000 -,30,000
rent received 10,000
Cash flows from Investment activities -1,10,000 -,10,000

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C Cash Flow From Financing activities:-
issue of share capital 50,000
payment of proposed dividend -42,000
interim dividend paid -20,000
Cash flows from Financing Activities -12,000
Net cash decrease in cash and cash equivalent -7000
cash and cash equivalents in the beginning of the
(Add) period 25,000
cash and cash equivalents in the end of the period 18,000

Working Notes:-
profit before tax
Profit and loss balance on 31st March 2018 48,000
Less Profit and loss balance on 31st March 2017 30,000
18,000
Add Proposed Dividend 50,000
interim dividend paid adj 20,000
transfer to general reserve 30,000
Provision for taxation 45,000 2
1,63,000
Land and Building account
Particular Amount Particular Amount
BY statement of P& L (Current
To balance b/d 2,00,000 year Depreciation) 20,000
By Bank A/c ( Balancing Figure
being sales) 10,000
By Balance c/d (Given) 1,70,000
2,00,000 2,00,000
Plant account
Particular Amount Particular Amount
To balance b/d 80,000 BY statement of P& L (Current year 10,000
Depreciation)
To Bank account (Balancing 1,30,000 By Balance c/d (Given) 2,00,000
Figure being sales) Purchase
2,10,000 2,10,000
Provision for Taxation
Particular Amount Particular Amount
To bank a/c (Payment made) 35,000 By Balance b/d Given 40,000
Given
To balance C/d Given 50,000 BY P& L (Balancing figure, being 45,000 1
provision made in 2018)
85,000 85,000

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 Course: Financial Statement Reporting and Analysis
Note: Rent received is deducted from profit because it is related to investment in property. It will be
shown as inflow of cash under investing activity.
Comment:
Cash flows from operating activities are Rs.1,15,000, whereas cash flows from financing activities are
(Rs.12,000) and at the same time the cash flows from investment activities are (Rs.1,10,000). This
condition proves that the firm is utilizing cash flows in appropriate manner. Negative cash flows from
investment activities and from financing activities, while positive cash flows from operating activities is
the indications of better cash flow management and better performance of business. This position
indicates that firm has sufficient cash from operating activities which they are utilizing for repayment of
debt as well as investment in long term assets.

Question 2. From the following Balance Sheets of M/s KTI ltd., Prepare cash flow statement and also
evaluate the financial performance:
Balance Sheet As at 31.03.2018 and 31.03.2017
Note
Particulars 31.03.2018 31.03.2017
No.
I. Equity and Liabilities : Amount Amount
(1) Shareholder’s Funds :
1
a) Share Capital FA +20,000 1,00,000 80,000
b)Reserve & Surplus P/L 6,400 6,000
(2)Non-Current Liabilities
Long- term Borrowing 2 14,000 12,000
(3)Current Liabilities
a) Short Term Borrowing 3 13,600 25,000
b Trade Payables CL -4,000 20,000 24,000
c) Short Term Provisions 4 20,000 16,000
d) Other Current Liabilities 5 2,000 -
Total 1,76,000 1,63,000
I. Assets :
(1) Non-Current Assets :
Fixed Assets A/C 6 50,000 60,000
(2) Current Assets :
a) Inventories CA -10,000 70,000 60,000
b) Trade Receivables CA -8,000 48,000 40,000
c ) Cash & Cash Equivalents 7,000 2,400
d) Prepaid Expenses CA -400 1,000 600
Total 1,76,000 1,63,000

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Notes:
31.03.2018 31.03.2017
Note No. Particulars
Amount Amount
Reserve & Surplus:
1 General Reserve nothing 4,000 4,000
Profit & Loss Balance W. Note 2,400 2,000
Total 6,400 6,000
Long Term Borrowing :
2
15% Debenture FA +2,000 14,000 12,000
Total 14,000 12,000
Short Term Borrowing :
3
Cash Credit FA -11,400 13,600 25,000
Total 13,600 25,000
Short Term Provisions:
3 Provision for Taxation A/C 8,400 6,000
Proposed Dividend proposed P/L+11,600 11,600 10,000 paid FA-
Total 20,000 16,000
Other Current Liabilities :
Dividend Payable NEEDNEED TOTO CHECK
CHECK OA, +2,000 2,000 -
OA, +2,000
Fixed Assets : A/C 80,000 82,000
4
Less :- Accumulated Depreciation A/C 30,000 22,000
Total 50,000 60,000
Additional Information:-
a) Provision for tax made Rs 9,400 A/C-, P/L
b) Fixed Asset sold for Rs 10,000, their cost Rs 20,000 and accumulated depreciation till date of sale is
Rs 6,000 A/C, OA, IA cost 20,000
dep - 6,000
c) An interim dividend paid during the year Rs 9,000 FA-, P/L
=Rem 14,000
sale -10,000
Solution: = loss 4.000 (OA)
Cash Flow Statement
A Cash Flow From Operating activities:-
Profit before tax(Working Note1) 30,400
Adjustment for on cash and non-operating items:-
(+) depreciation 14,000
loss on sale of fixed assets 4,000
interest on debenture 15% on 12,000 1,800 19,800
Operating Profit before working capital changes 50,200
(-) Increase in current assets
inventory 10,000
trade receivables 8,000
Prepaid expenses 400
(-) Decrease in current liability (Trade payable) 4,000 (22,400)

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Cash generated from operating activities 27,800
Income tax paid less (7000)
Net Cash from Operating activities 20,800
B Cash Flow From Investing activities:-
sale of Fixed Assets 10,000
Purchase of fixed assets (18,000)
Net cash used in investing activities (8,000)
C Cash Flow From Financing activities:-
issue of share capital 20,000
issue of debenture 2,000
proposed dividend (8,000)
interim dividend (9,000)
interest on debenture (1,800)
Decrease in cash credit (11,400)
net cash used in investing activities financing (8200)
net increase in cash and cash equivalent 4600
+ cash and cash equivalents in the beginning of the period 2,400
cash and cash equivalents in the end of the period 7,000
Working Notes:-
profit before tax
Profit an loss balance on 31st March 2018 2,400
Less Profit an loss balance on 31st March 2017 2,000
400
Add Proposed Dividend 11,600
interim dividend paid 9,000

Provision for taxation 9,400

30,400
Fixed Assets Account
Particular Amount Particular Amount
To balance b/d 82,000 BY Accumulated Depreciation) 6,000
To bank a/c ( Balancing Figure) 18,000 By Bank A( being sales) 10,000
Purchase By P & L account loss OA 4,000
By Balance c/d (Given) 80,000
1,00,000 1,00,000

Accumulated depreciation account

Particular Amount Particular Amount
To fixed Assets 6,000 By Balance B/d 22,000
To balance c/d 30,000 By P & L a/c ( Current years DEP) 14,000
36,000 36,000

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Provision for Taxation
Particular Amount Particular Amount
To bank a/c (Payment 7,000 By Balance b/d Given 6,000
made) BAL. FIG
To balance C/d Given 8,400 BY statement of P& L (Balancing 9,400
figure, being provision made in 2018)
15,400 15,400
Note :- Decrease in cash credit is treated as financing activity.
Comment:
Cash flows from operating activities are Rs.20,800, whereas cash flows from financing activities are
(Rs.8,200) and at the same time the cash flows from investment activities are (Rs.8,000). This condition
proves that the firm is utilizing cash flows in appropriate manner. Negative cash flows from investment
activities and from financing activities, while positive cash flows from operating activities is the
indications of better cash flow management and better performance of business. This position
indicates that firm has sufficient cash from operating activities which they are utilizing for repayment of
debt as well as investment in long term assets.

Question 3. You are required to prepare a Cash- Flow statement (as per AS-3) for the year 2017-18
from the following Balance Sheets and also evaluate the financial performance:
Balance Sheets of Janakhi India Ltd. as on 31st March, 2018
Note
Particulars 31.03.2018 31.03.2017
No.
I. Equity and Liabilities : Amount Amount
(1) Shareholder’s Funds :
a) Share Capital (Equity Share Capital) FA +1,00,000 3,00,000 2,00,000
b) Reserve & Surplus (Statement of P&L a/c) Note 1,20,000 70,000
(2) Non-Current Liabilities
a) Long- term Borrowing ( 8% Debenture) FA 1,50,000 1,20,000
(3) Current Liabilities
a) Short Term Borrowing (Bank Overdraft) FA +14,000 19,000 5,000
b) Trade Payables (Creditors) CL +11,000 31,000 20,000
c) Short Term Provisions A/C 1,32,000 1,21,600
Total 7,52,000 5,36,600
I. Assets :
(1) Non-Current Assets :
a) Fixed Assets
Tangible 2 2,04,200 1,83,000
b) Non-Current Investment IA -10,000 1,30,000 1,20,000

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(2) Current Assets :

a) Inventories CA -16,500 1,41,500 1,25,000
b) Trade Receivables CA -100 64,600 64,500
c) Cash & Bank Balances ( Cash at Bank ) 2,11,700 44,100
Total 7,52,000 5,36,600

Note No. Particulars 31.03.2018 31.03.2017

Amount Amount
Short Term Provisions:
Proposed Dividend P/L 80,000 60,000 paid
1 P/L 50,000
Provision for Taxation 60,000 paid
Provision for Doubtful Debts OA +400 2,000 1,600
Total 1,32,000 1,21,600
Fixed Assets (Tangible)
3 Plant & Machinery 2,43,000 2,23,000
Less:- Accumulated Depreciation (38,800) (40,000)
Total 2,04,200 1,83,000
Additional Information:-During the year 2017-18:
1) A part of Machinery was sold for Rs 21,000 a profit of Rs 4,000. A/C, IA, OA +4,000
2) The company charged Rs 3,000 as depreciation on its Plant & Machinery. A/C
3) New Debenture were issued on 31st March,2018 at a discount of 10% 30,000 @10% =3,000 OA+
4) Interest of Rs 9,600 was paid on Debenture. OA+ FA-

Solution:
A Cash Flow From Operating activities:-
Profit before tax(Working Note1) 1,80,000 2
Adjustment for on cash and non-operating
items:-
(+) depreciation on plant and Machinery 3,000
Provision for RDD 400
Discount on issue of debenture 3,000
Interest paid on debenture 1,20,000@8% 9,600
(-) profit on sale of machinery (4,000) 12,000
Operating Profit before working capital
changes 1,92,000
(-) Increase in current assets
Inventory (16,500)
trade receivables (100)
Decrease in current liability (Trade payable) 11,000 (5,600)
Cash generated from operating activities 1,86,400

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Income tax paid less (60,000)
Net Cash from Operating activities 1,26,400
B Cash Flow From Investing activities:-
Purchase of plant (41,200)
sale of Machinery 21,000
Purchase of non current investment (10,000)
net cash used in investing activities (30,200)
C Cash Flow From Financing activities:-
issue of share capital 1,00,000
short term borrowing 14,000
issue of debenture( long term borrowing) 27,000
Dividend paid (60,000)
Interest on debenture (9,600)
net cash used in Financing activities 71,400
net increase in cash and cash equivalent 1,67,600
cash and cash equivalents in the beginning of
(Add) the period 44,100
cash and cash equivalents in the end of the
period 2,11,700
Working Notes:- Computation of Profit before tax
Profit an loss balance on 31 st March 2018 1,20,000
Less Profit an loss balance on 31 st March 2017 70,000
50,000
Add Provision for tax 80,000
Proposed dividend 50,000
1,80,000 1
Plant and Machinery A/c
Particular Amount Particular Amount
To balance b/d 2,23,000 BY Accumulated Depreciation) 4,200 4
To profit on sale 4,000 By Bank A( being sales) 21,000
To bank a/c ( Balancing Figure) Purchase IA- 41,200
By Balance c/d (Given) 2,43,000
2,68,200 2,68,200
Accumulated depreciation Account
Particular Amount Particular Amount
To Plant and machinery account
(Balancing Figure, being the depreciation
on machinery sold) 3 4,200 By Balance B/d 40,000
By Depreciation account
To balance c/d 38,800 (Current year depreciation ) 3,000
43,000 43,000

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 Course: Financial Statement Reporting and Analysis
Note: Balancing figure of accumulates depreciation account 4200 is the depreciation on machinery
sold. It will be transferred to the credit of plant and machinery account.
Comment: Cash flows from operating activities are Rs.1,26,400, whereas cash flows from financing
activities are Rs.714000 and at the same time the cash flows from investment activities are (Rs.
30,200). This condition proves that the firm is utilizing cash flows in appropriate manner. Negative cash
flows from investment activities and positive cash flows from financing and operating activities are the
indications of better cash flow management and better performance of business. Further, Investment
funds are still available with firm.

Question 4. From the following Balance Sheets of M/s Zee Ltd , Prepare its Cash Flow Statement for
the year 2017-18 (As per AS- 3) and also evaluate the financial performance
Particulars Note No. 2017-18 2016-17
I. Equity and Liabilities : Amount Amount
(1) Shareholder’s Funds :
a) Share Capital 33,00,000 32,00,000
b) Reserve & Surplus 1 5,00,000 4,00,000

(2) Non-Current Liabilities

Long- term Borrowing 2 16,00,000 15,00,000

(3) Current Liabilities

a) Trade Payables ( Creditors) 3,00,000 5,00,000
b) Short Term Provisions 3 50,000 40,000

Total 57,50,000 56,40,000

II. Assets :
(1) Non-Current Assets :
a) Fixed Assets
i) Tangible 4 39,50,000 34,60,000
ii) Intangible 5 50,000 40,000
b) Non-Current Investment 6,00,000 6,00,000

(2) Current Assets :

6 10,000 30,000
a) Current Investment
50,000 40,000
b) Inventories
6,00,000 8,00,000
c) Trade Receivables
4,90,000 6,70,000
d) Cash & Bank Balances

Total 57,50,000 56,40,000

Note No. Particulars 2017-18 Amount 2016-17 Amount

Reserve & Surplus:
1
General Reserve 3,50,000 2,80,000

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Profit & Loss Balance 1,50,000 1,20,000
Total 5,00,000 4,00,000
Long Term Borrowing :
2
10% Debenture 16,00,000 15,00,000
Total 16,00,000 15,00,000
Short Term Provisions:
3 Proposed Dividend 30,000 27,000
Provision for Taxation 20,000 13,000
Total 50,000 40,000
4 Tangible Asset :- Plant & Machinery 39,50,000 34,60,000
Total
5 Intangible Assets :- Goodwill 50,000 40,000
Current Investments :
6
Marketable Securities 10,000 30,000
Additional Information:-
(1) The debentures were issued on 1.04.2017.
(2) Machinery costing Rs 70,000/- (accumulated depreciation thereon Rs 10,000) was sold for Rs
45,000.
(3) Machinery Costing Rs 8,00,000 was purchased during the year.
(4) Interim Dividend of Rs 11,000 was paid during the year.

Solution:
Cash Flow Statement
Particular Amount
I. Cash flows from Operating Activities :

Net profit before taxation & extraordinary items 1,61,000

Adjustment for non-cash and non-operating items

Loss on sale of Machinery 15,000
Depreciation on Plant & Machinery 2,50,000
Interest Paid on Debenture 1,60,000
Operating Profit before Working capital Changes 5,86,000
(+) Decrease in inventories 2,00,000
(-) Increase in Trade receivables (10,000)
(-) Decrease in Trade Payable (2,00,000)
Cash generated from Operating activities 5,76,000
(–) Tax paid (27,000)
A. Cash Inflows from Operating Activities 5,49,000
II. Cash flows from Investing Activities:
Proceeds from sale of Machinery 45,000
Purchase of Machinery (8,00,000)
Purchase of Goodlwill (10,000)

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 Course: Financial Statement Reporting and Analysis
B. Cash used in Investing Activities (7,65,000)
III. Cash flows from Financing Activities:
Proceed from Issue of Share Capital 1,00,000
Proceeds from Issue of Debenture 1,00,000
Payment of Interim Dividend (11,000)
Payment of Proposed Dividend Last year (13,000)
Payment of Interest on Debenture (1,60,000)
C. Cash Inflows from Financing Activities 16,000
Net decrease in Cash & Cash Equivalents (A+B+C) (2,00,000)
(+) Cash and Cash Equivalents in the beginning 7,00,000
Cash and Cash Equivalents in the end 5,00,000

Working Notes:
(1) Net Profit before Tax:
Profit & Loss Balance on 31st March, 2018 1,50,000
Less: Profit & Loss bal on 31st March, 2017 1,20,000
30,000
Add: Interim Dividend Paid 11,000
Proposed Dividend for current year 20,000
Provision for Taxation for current year 30,000
Transfer to General Reserve 70,000
1,61,000

Tangible Asset Account

Particulars Amount Particulars Amount
Balance b/d 34,60,000 By Bank ( Sale of Land) 45,000
Purchase of fixed Assets 8,00,000 By Loss on sale 15,000

By Depreciation (bal. fig) 2,50,000

Balance c/d 39,50,000

42,60,000 42,60,000

Cash & Cash equivalents 31.03.2018 30.03.2017

Cash & Bank 4,90,000 6,70,000
Marketable Securities 10,000 30,000
5,00,000 7,00,000
Comment: Cash flows from operating activities are Rs.5,48,000, whereas cash flows from financing
activities are Rs.16,000 and at the same time the cash flows from investment activities are
(Rs.7,65,000). This condition proves that the firm is utilizing cash flows in appropriate manner. Negative
cash flows from investment activities and positive cash flows from financing and operating activities
are the indications of better cash flow management and better performance of business. Further
Investment funds are still available with firm.
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 Course: Financial Statement Reporting and Analysis
Question 5. From the following information, prepare Cash Flow Statement for Elegant Ltd and also
evaluate the financial performance.
Balance Sheet of Pioneer Ltd., as on March 31, 2018
Note 31st March
Particulars 31st March 2017
No. 2018
I. Equity and Liabilities
1 Shareholders’ Funds
a) Share capital 1 7,00,000 5,00,000
b) Reserve and surplus 2 3,50,000 2,00,000
2 Non-current Liabilities
Long-term borrowings: Bank Loan 50,000 1,00,000
3 Current Liabilities
a) Trade payables 45,000 50,000
b) Other current liabilities: outstanding
7,000 5,000
rent
c) Short-term provisions 3 1,20,000 80,000
Total 12,72,000 9,35,000
II. Assets
1 Non-current assets
a) Fixed assets
(i) Tangible assets 4 5,00,000 5,00,000
(ii) Intangible assets 5 95,000 1,00,000
b) Non-current investments 1,00,000 -
2 Current assets
a) Inventories 1,30,000 50,000
b) Trade receivables 1,20,000 80,000
c) Cash and cash equivalents 6 3,27,000 2,05,000
Total 12,72,000 9,35,000

31st March 2018 31st March

Particulars
(Rs) 2017 (Rs)
1 Equity Share Capital 7,00,000 5,00,000
2 Reserve and Surplus
Surplus: i.e., Balance in Statement of Profit & Loss A/C 3,50,000 2,00,000
3. Short-term Provision:
Proposed Dividend 70,000 50,000
Provision for Taxation 50,000 30,000

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1,20,000 80,000
Fixed Assets
Tangible
Equipment 2,30,000 2,00,000
Furniture 2,70,000 3,00,000
5,00,000 5,00,000
Intangible Assets
Patents 95,000 1,00,000

Cash and cash equivalents

(i) Cash 27,000 5,000
ii) Bank balance 3,00,000 2,00,000
3,27,000 2,05,000
Additional Information:
1) During the year, equipment costing Rs 80,000 was purchased.
2) Loss on Sale of equipment amounted to Rs 5,000.
3) Depreciation of Rs 15,000 and Rs 30,000 charged on equipment’s and furniture.

Solution:
Cash Flow Statement
Particular Amount
I. Cash flows from Operating Activities :
Net profit before taxation & extraordinary items 2,70,000
Provision for :
Depreciation on equipment 15,000
Depreciation on furniture 30,000
Patents written-off 5,000
Loss on sale of equipment 5,000
Operating Profit before Working capital Changes 3,25,000
– Decrease in Trade payables -5,000
(+) Increase in Outstanding rent 2,000
– Increase in Trade receivables -40,000
– Increase in inventories -80,000
Cash generated from Operating activities 2,02,000
(–) Tax paid 30,000
A. Cash Inflows from Operating Activities 1,72,000
II. Cash flows from Investing Activities:
Proceeds from sale of equipment 30,000
Purchase of new equipment -80,000

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Purchase of Investments -100000
B. Cash used in Investing Activities -150,000
III. Cash flows from Financing Activities:
Issues of equity share capital 2,00,000
Repayment of bank loan -50,000
Payment of dividend -50,000
C. Cash flows from Financing Activities 1,00,000
Net increase in Cash & Cash Equivalents (A+B+C) 1,22,000
(+) Cash and Cash Equivalents in the beginning 2,05,000
Cash and Cash Equivalents in the end 3,27,000

Working Notes:
Equity Share Capital Account
Particulars Amount Particulars Amount
Balance b/d 2,00,000 Depreciation (Bal. fig) 15,000
Cash 80,000 Bank 30,000
Statement of Profit & Loss
Account (loss on salw) 5,000
Balance c/d 2,30,000
2,80,000 2,80,000
(2) Patents of Rs 5,000 (i.e., Rs 1,00,000 – Rs 95,000) were written-off during the year, and depreciation
on furniture Rs 30,000. (Rs 3,00,000 – Rs 2,70,000)
(3) It is assumed that dividend of Rs 50,000 and tax of Rs 30,000 provided in 2013-2014 has been paid
during the year 2014-15. Hence, proposed dividend and provision for tax during the year amounts to Rs
70,000 and Rs 50,000 respectively.
(Rs)
(4) Profit and Loss at the end 3,50,000
(–) Profit and Loss in the beginning 2,00,000
(5) Net Profit during the year 1,50,000
+ Provision for tax during the year 50,000
+ Proposed dividend 70,000
Net Profit before taxation & extraordinary Items 2,70,000
Comment:
Cash flows from operating activities are Rs.1,72,000, whereas cash flows from financing activities are
Rs.1,00,000 and at the same time the cash flows from investment activities are (Rs.1,50,000). This
condition proves that the firm is utilizing cash flows in appropriate manner. Negative cash flows from
investment activities and positive cash flows from financing and operating activities are the indications
of better cash flow management and better performance of business.

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Question 6. From the following Balance Sheets of Rayan Ltd., prepare cash flow statement and also
evaluate the financial performance
Note 31st March 31st March
Particulars
No. 2018 2017
I. Equity and Liabilities
1 Shareholders’ Funds
a) Share capital 15,00,000 10,00,000
b) Reserve and surplus (Balance in
7,50,000 6,00,000
Statement of Profit and Loss)
2 Non-current Liabilities
Long-term borrowings 1 1,00,000 2,00,000
3 Current Liabilities
a) Trade payables 1,00,000 1,10,000
b) Short-term provisions 95,000 80,000
(Provision for taxation)
Total 25,45,000 19,90,000
II. Assets
Non-current assets
1 a) Fixed assets
(i) Tangible assets 2 10,10,000 12,00,000
(ii) Intangible assets (Goodwill) 1,80,000 2,00,000
b) Non-current investment 6,00,000 -
Current assets
2 a) Inventories 1,80,000 1,00,000
b) Trade Receivables 2,00,000 1,50,000
c) Cash and cash equivalents 3 3,75,000 3,40,000
Total 25,45,000 19,90,000
Notes to Accounts
Particulars 31st March 2018 31st March 2017
1 Long-term Borrowings:
i) Debentures 2,00,000
ii) Bank loan 1,00,000
1,00,000 2,00,000
2 Tangible Assets
i) Land and building 6,50,000 8,00,000
ii) Plant and machinery 3,60,000 4,00,000

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10,10,000 12,00,000
3 Cash and cash equivalents
i) Cash in hand 70,000 50,000
ii) Bank balance 3,05,000 2,90,000
3,75,000 3,40,000
Additional information:
1. Dividend proposed and paid during the year Rs 1,50,000.
2. Income tax paid during the year includes Rs 15,000 on account of dividend tax.
3. Land and building book value Rs 1,50,000 was sold at a profit of 10%.
4. The rate of depreciation on plant and machinery is 10%.
Solution:
Particular Amount
I. Cash flows from Operating Activities :
Net profit before taxation & extraordinary items 3,95,000
Provision for :
Depreciation 40,000
Goodwill written off 20,000
Profit on sale of Land -15,000
Operating Profit before Working capital Changes 4,40,000
– Decrease in Trade payables -10,000
– Increase in Trade receivables -50,000
– Increase in inventories -80,000
Cash generated from Operating activities 3,00,000
(–) Tax paid 65,000
A. Cash Inflows from Operating Activities 2,35,000
II. Cash flows from Investing Activities:
Proceeds from sale of Land & Building 1,65,000
Purchase of Investments (6,00,000)
B. Cash used in Investing Activities (4,35,000)
III. Cash flows from Financing Activities:
Issues of equity share capital 5,00,000
Redemption of Debenture -200,000
Proceed from raising bank loan 1,00,000
Payment of dividend -150,000
Dividend Tax Paid -15,000
C. Cash Inflows from Financing Activities 2,35,000
Net increase in Cash & Cash Equivalents (A+B+C) 35,000
(+) Cash and Cash Equivalents in the beginning 3,40,000
Cash and Cash Equivalents in the end

(1) Total tax paid during the year Rs 80,0000

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(–) Dividend tax paid (given) Rs (15,000)
Income tax paid for operating activities Rs 65,000
(2) Net profit earned during the year after tax and dividend
= Rs 7,50,000 – 6,00,000 = Rs 1,50,000
(3) Net profit before tax = Net profit earned during the year after tax and dividend + Provision for tax
made + Proposed Dividend
= Rs 1,50,000 + Rs 95,000 (See provision for taxation account)+ Rs 1,50,000 = Rs 3,95,000
Equity Share Capital Account
Particulars JF Amount Particulars JF Amount
Balance c/d 15,00,000 Balance b/d 10,00,000
Cash (New Capital
Raised) 5,00,000

15,00,000 15,00,000
Debenture Account
Particulars JF Amount Particulars JF Amount
Cash (redemption) 20,000 Balance b/d 20,000
20,000 20,000
Bank Account
Particulars JF Amount Particulars JF Amount
Balance c/d 1,00,000 1,00,000
1,00,000 1,00,000

Provision for Tax Account

Particulars JF Amount Particulars JF Amount
Cash ( Tax paid
including Rs.15,000
for Dividend) 80,000 Balance b/d 80,000
Statement of Profit &
Loss Account (Prof.
Balance c/d 95,000 made during the year) 95,000

1,75,000 1,75,000

Land & Building Account

Particulars JF Amount Particulars JF Amount
Balance b/d 8,00,000 Cash 1,65,000
Statement of Profit
& Loss Account
(Profit on Sale) 15,000 Balance c/d 6,50,000

8,15,000 8,15,000

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Proposed Dividend Account

Particulars JF Amount Particulars JF Amount
Cash 1,50,000 Surplus 1,50,000
1,50,000 1,50,000

Plant & Machinery Account

Particulars JF Amount Particulars JF Amount
Balance b/d 4,00,000 Depreciation 40,000
Balance c/d 3,60,000

4,00,000 4,00,000
Comment: Cash flows from operating activities are Rs.2,35,000, whereas cash flows from financing
activities are Rs.2,35,000 and at the same time the cash flows from investment activities are
(Rs.4,35,000). This condition proves that the firm is utilizing cash flows in appropriate manner. Negative
cash flows from investment activities and positive cash flows from financing and operating activities
are the indications of better cash flow management and better performance of business.

Question 7. From The Following Information of Oswal Mills Ltd., Prepare Cash Flow Statement and also
evaluate the financial performance
Balance Sheet of Oswal Mills as on 31st March, 2017 and 2018
31st March 31st March
Particulars Note No.
2018 (Rs) 2017 (Rs)
I. Equity and Liabilities
1 Shareholders’ Funds
a) Share capital 1 1,300 1,400
b) Reserve and surplus (Surplus) 4,700 4,000
2 Current Liabilities
a) Short-term loan 200 600
b) Trade payables 500 400
Total 6,700 6,400
II. Assets
1 Non-current assets
a) Fixed assets 2 2,400 2,400
b) Non-current investments 300 200
2 Current assets
a) Inventories 1,200 1,300
b) Trade receivables 800 900
c) Cash and cash equivalents 1,200 800

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d) Short-term loans and advances 800 800
Total 6,700 6,400
Notes to Accounts: (Rs in Lakhs) (Rs in Lakhs)
Particulars 31st March 2018 31st March 2017
1 Share capital
Equity share capital 1,000 1,000
10% preference share capital 300 400
1,300 1,400
2 Fixed assets
Tangible assets 3,600 3,400
Less: Accumlated depreciation -1,200 -1,000
2,400 2,400

Statement of Profit and Loss for the year ended 31 st March, 2018
Note 31st March 31st March
Particulars
No. 2018 2017
I. Revenue from operation 2,800 -
II. Other income (dividend income) 1,000 -
III. Total Revenue 3,800 -
IV. Expenses -
Cost of material consumed 400 -
Employees benefit expenses 200 -
Finance cost (interest paid) 200 -
Depreciation 200 -
Loss due to earthquake 1,100 -
2,100
V. Profit before tax 1,700 -
VI. Tax paid 1,000 -
Profit after tax 700 -
Additional information:
1. No dividend paid by the company during the current financial year.
2. Out of fixed assets, land worth Rs 1,000 Lakhs having no accumulated depreciation was sold at
no profit or no loss

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Solution:
Cash Flow Statement
Particular Amount

I. Cash flows from Operating Activities :

Net profit before taxation & extraordinary items 2,800

Adjustment for
Depreciation 200
Interest Paid 200
Operating Profit before Working capital Changes 3,200
(+) Increase in Trade payables 100
(+) Decrease in Trade receivables 100
(+) Decrease in inventories 100
Cash generated from Operating activities 3,500
(–) Tax paid -1,000
Cash before Extra-ordinary Item 2,500
(-) Loss due to Earthquake 1,100
A. Cash Inflows from Operating Activities 1,400
II. Cash flows from Investing Activities:
Proceeds from sale of Land 1,000
Purchase of fixed Asset (2) -1,200
Purchase of Investment -100
B. Cash used in Investing Activities - 300
III. Cash flows from Financing Activities:
Payment of short term loan -400
Interest Paid -200
Redemption of Preference Share Capital -100
C. Cash Inflows from Financing Activities -700
Net increase in Cash & Cash Equivalents (A+B+C) 400
(+) Cash and Cash Equivalents in the beginning 800
Cash and Cash Equivalents in the end 1,200

Working Notes:
(1) Net Profit before Tax and Extraordinary Items = Rs 700 + Rs 1,100 + Rs 1,000 = Rs 2,800
2) Fixed Asset Account
Particulars JF Amount Particulars JF Amount
Balance b/d 3,400 Cash ( Sale of Land) 1,000
Purchase of fixed
Assets 1,200 Balance c/d 3,600

4,600 4,600

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Accumulated Depreciation Account

Particulars JF Amount Particulars JF Amount
Balance c/d 1,200 Balance b/d 1,000
Statement of Profit & Loss
Account 200
1,200 1,200
Comment:
Cash flows from operating activities are Rs.1,400, whereas cash flows from financing activities are
(Rs.700) and at the same time the cash flows from investment activities are (Rs.300). This condition
proves that the firm is utilizing cash flows in appropriate manner. Negative cash flows from investment
activities and from financing activities, while positive cash flows from operating activities is the
indications of better cash flow management and better performance of business. This position
indicates that firm has sufficient cash from operating activities which they are utilizing for repayment of
debt as well as investment in long term assets.
Question 8. From the following Balance Sheets of XYL Limited, Prepare Cash Flow Statement and also
evaluate the financial performance:
Note
Particulars 31.03.2018 31.03.2017
No.
Equity and Liabilities : Amount Amount
a)Shareholder’s Funds : 1
a) Share Capital 2 2,50,000 2,25,000
b) Reserve & Surplus 2,60,000 1,15,000
(1) Current Liabilities
a) Trade Payables 49,500 37,500
b) Short Term Provisions 3 50,000 40,000
Total 6,09,500 4,17,500
I. Assets :
(1) Non-Current Assets :
(a) Fixed Assets

(i) Tangible Assets 4 2,80,000

2,40,000
(ii) Intangible Assets 5 20,000 36,000
(2) Current Assets :
(a) Inventory 15,000 10,000
(b) Trade Receivables 2,84,500 1,19,000
(c) Cash & Cash Equivalents 10,000 12,500
Total 6,09,500 4,17,500

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31.03.2018 31.03.2017
Particulars
Amount Amount
Share Capital
Equity Share Capital 2,00,000 1,50,000
Preference Share Capital 50,000 75,000
2,50,000 2,25,000
Reserve & Surplus:
General Reserve 1,25,000 70,000
Profit & Loss Balance 1,35,000 45,000
Total 2,60,000 1,15,000
Short Term Provisions:
Provision for Taxation 50,000 40,000
Total
Tangible Assets :
Land & Building 1,80,000 2,00,000
Plant 1,00,000 40,000
Total 2,80,000 2,40,000
Intangible Assets :
Goodwill 20,000 36,000
Additional Information:-
a) Depreciation of Rs 10,000 & Rs. 60,000 has been charged on plant, land & Building respectively.
b) Income Tax of Rs 43,000 has been paid.
Solution:
Particular Amount

I. Cash flows from Operating Activities :

Net profit before taxation (Note 1) 1,98,000

Adjustment for non-cash and non-operating items

+ Depreciation on plant 10,000
+ Depreciation on Building 60,000
+ Goodwill written off 16,000
Operating Profit before Working capital Changes 2,84,000
(+) Increase in Trade payables 12,000
(-) Increase in Trade receivables (1.65,500)
(-) Increase in inventories (5,000)
Cash generated from Operating activities 1,25,500
(–) Tax paid (43,000)
A. Cash Inflows from Operating Activities 82,500
II. Cash flows from Investing Activities:
Purchase of Building (40,000)

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Purchase of Plant (70,000)
B. Cash used in Investing Activities (1,10,000)
III. Cash flows from Financing Activities:
Issue of equity share capital 50,000
Redemption of Preference Share Capital (25,000)
C. Cash Inflows from Financing Activities 25,000
Net decrease in Cash & Cash Equivalents (A+B+C) (2,500)
(+) Cash and Cash Equivalents in the beginning 12,500
Cash and Cash Equivalents in the end 10,000
Note 1:
Calculation of profit before tax
Profit & Loss balance on 31st March, 2018 1,35,000
Less: Profit & Loss balance on 31st March, 2017 45,000
90,000
Add: Transfer to General Reserve (1,25,000 – 70,000) 55,000
Provision for tax made during the year 53,000
1,08,000
Net Profit before Tax 1,98,000
Building Account
Particulars JF Amount Particulars JF Amount
To Balance b/d 2,00,000 By Depreciation 60,000
To Bank Account
(Purchase) 40,000 By Balance c/d 1,80,000

2,40,000 2,40,000
Plant Account
Particulars JF Amount Particulars JF Amount
To Balance b/d 40,000 By Depreciation 10,000
To Bank Account
(Purchase) 70,000 By Balance c/d 1,00,000

1,10,000 1,10,000
Provision for Tax Account
Particulars JF Amount Particulars JF Amount
To Bank Account 43,000 By Balance b/d 40,000
By Statement of Profit
& Loss Account (Bal.
To Balance c/d 50,000 fig) 53,000
93,000 93,000
Cash flows from operating activities are Rs.82,500, whereas cash flows from financing activities are
Rs.25,000 and at the same time the cash flows from investment activities are (Rs.1,10,000). This
condition proves that the firm is utilizing cash flows in appropriate manner. Negative cash flows from

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investment activities, while positive cash flows from operating activities and from financing activities is
the indications of better cash flow management and better performance of business.

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Module 4
Analysis of financial Statement - I: Introduction, Assessment of Business Performance through Ratio
Analysis: Concept of Ratio, significance of ratio analysis, Interpretation of financial performance using
ratio. Profitability Ratio, Liquidity Ratio, Solvency Ratio, Activity Ratio & efficiency Ratio

CO4: Given the financial statements a student will be able to perform Ratio analysis and comment on
the performance of the firm whether a firm is doing well or not. (As compared to its peers or year on
year basis)

Question 1. The Balance Sheet of Bajaj Auto Limited as on 31‐12‐2019 was as follows:
Particulars Rs. Particulars Rs.
Equity Share Capital 40,000 Plant and Machinery 24,000
Reserve 8,000 Land and Buildings 40,000
8% Loan on Mortgage 32,000 Furniture & Fixtures 16,000
Creditors 16,000 Stock 12,000
Bank overdraft 4,000 Debtors 12,000
Taxation: Investments (Short‐term) 4,000
Current 4,000 Cash in hand 12,000
Future 4,000
Profit and Loss A/c 12,000
1,20,000 1,20,000
From the above, Name and calculate the ratios which indicate -
(a) The ability of the company to meet its current obligation,
(b) The ability of the company to meet its current obligation
(c) The relative importance of Proprietorship and liabilities as Source of Funds and
(d) That reveals the owners Contribution to the total value of Assets
Solution – 1(Problem related to Balance Sheet Ratio)
The ability of the company to 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Current Ratio =
meet its current obligation 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

1. Current Ratio Current Assets = Stock + debtors + Investments (short term) +

Cash In hand

Current Liabilities = Creditors + bank overdraft + Provision

for Taxation (current & Future)

CA = 12000 + 12000 + 4000 + 12000 = 40,000

CL = 16000 + 4000 + 4000 + 4000 = 28,000

40000
Current Ratio = = 1.43:1
28000

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The ability of the company to Quick Assets = Current Assets ‐ Stock
meet its current obligation
Quick Liabilities = Current Liabilities – (BOD + PFT future)
2. Quick ratio = QA/QL
QA = 40,000 – 12,000 = 28,000

QL = 28,000 – (4,000 + 4,000) = 20,000

28000
Quick Ratio = =1.4:1
20000

𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐷𝑒𝑏𝑡 (𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠)

The relative importance of Debt Equity Ratio =
𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐹𝑢𝑛𝑑
Proprietorship and liabilities as
Source of Funds Long Term Liabilities = Debentures + Long term loans = 32,000

3. Debt Equity Ratio Shareholder’s Fund = Equity Share Capital + Reserves &
Surplus + Preference Share Capital – Fictitious Assets
=40,000+8,000+12,000 = 60,000

32,000
Debt Equity Ratio = = 0.53:1
60,000

Ability that reveals the owners 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐹𝑢𝑛𝑑

Proprietary Ratio =
contribution to the total value of 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
assets
Shareholder’s Fund = Shareholder’s Fund = Equity Share
4. Proprietary Ratio Capital + Reserves & Surplus + Preference Share Capital –
Fictitious Assets

= 40,000 + 8,000 + 12,000 =60,000

Total Assets = Total Assets – Fictitious Assets = 1,20,000

60,000
Proprietary Ratio = = 0.5:1
1,20,000

Question 2. From the following balance sheet of ITC limited calculate (i) current ratio (ii) liquid ratio
(iii) debt-equity ratio (iv) proprietary ratio, and (v) capital gearing ratio. Also discuss the importance of
each ratio for financial analysis and interpret the result.
Balance Sheet of ITC Limited as On 31-12-2018 -----
Liabilities Amount (Rs.) Assets Amount (Rs.)

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Equity share capital 10,00,000 goodwill 5,00,000

6% preference capital l 5,00,000 plant & machinery 6,00,000

Reserves 1,00,000 land & buildings 7,00,000

Profit & loss a/c 4,00,000 furniture 1,00,000

Tax provision 1,76,000 stock 6,00,000

Bills payable 1,24,000 bills receivables 30,000

Bank overdraft 20,000 sundry debtors 1,50,000

Sundry creditors 80,000 bank account 2,00,000

12% debentures 5,00,000 short term investment 20,000

29,00,000 29,00,000

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
i. Current Ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑆𝑡𝑜𝑐𝑘+𝐵𝑖𝑙𝑙𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒+𝐷𝑒𝑏𝑡𝑜𝑟𝑠+𝐵𝑎𝑛𝑘+𝑆ℎ𝑜𝑟𝑡 𝑇𝑒𝑟𝑚 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
=
𝑆𝑢𝑛𝑑𝑟𝑦 𝑐𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠+𝐵𝑖𝑙𝑙𝑠 𝑃𝑎𝑦𝑎𝑏𝑙𝑒+𝐵𝑎𝑛𝑘 𝑂𝑣𝑒𝑟𝑑𝑟𝑎𝑓𝑡+𝑇𝑎𝑥 𝑃𝑟𝑜𝑣𝑖𝑠𝑖𝑜𝑛

10,00,000
=
4,00,000
= 2.5:1
Interpretation:
The current ratio in the said firm is 2.5:1 against a standard ratio of 2:1. It is a good sign of
liquidity. However, the stock is found occupying 60 percent of current assets which may not be
easily realizable.
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝑆𝑡𝑜𝑐𝑘 4,00,000
ii. Liquid Ratio = = 4,00,000 = 1:1
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Interpretation:
The standard for quick ratio is 1:1. The calculated ratio in case of ITC limited is also 1:1. The above two
ratios show the safety in respect of liquidity in the said firm.
𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐷𝑒𝑏𝑡
iii. Debt Equity Ratio =
𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐹𝑢𝑛𝑑
𝐷𝑒𝑏𝑒𝑛𝑡𝑢𝑟𝑒𝑠
= 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠+𝑃&𝐿 𝐴/𝑐
5,00,000 5,00,000
= 10,00,000+5,00,000+1,00,000+4,00,000
= 20,00,000 = 1:4

Interpretation: Debt-equity ratio indicates the firm’s long term solvency. It can be observed that the
firm’s long term loans constitute 25 percent to that of the owners’ fund. Although such a low ratio
indicates better long term solvency, the less use of debt in capital structure may not enable the firm to
gain from the full stream of leverage effects.

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𝑃𝑟𝑜𝑝𝑟𝑖𝑒𝑡𝑜𝑟 ′ 𝑠 𝐹𝑢𝑛𝑑 𝑜𝑟 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐹𝑢𝑛𝑑
iv. Proprietary Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠 + 𝑃&𝐿 𝐴/𝑐
=
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

20,00,000
=
29,00,000

Interpretation:
Out of total assets, seven-tenths are found financed by owners’ funds. In other words a large majority
of long term funds are well invested in various long term assets in the firm.

𝑂𝑤𝑛𝑒𝑟 ′ 𝑠 𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒
v. Capital Gearing Ratio =
𝐹𝑖𝑥𝑒𝑑 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐵𝑒𝑎𝑟𝑖𝑛𝑔 𝑅𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠

𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠+𝑃&𝐿 𝐴/𝑐

=
𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝐷𝑒𝑏𝑒𝑛𝑡𝑢𝑟𝑒𝑠
10,00,000+1,00,000+4,00,000
=
5,00,000+5,00,000
15,00,000
= =1.5:1
10,00,000
Interpretation:
Keeping Rs.15 lakhs of equity funds as security, the firm is found to have mobilized Rs.10 lakhs from
fixed interest bearing sources. It indicates that the capital structure is low geared.

Question 3. The following are the balance sheet and profit and loss account of Sundara products
limited as on 31st December 2018.
Profit And Loss Account
Particular Amount Particulars Amount
To Opening Stock 1,00,000 By Sales 8,50,000
Purchases 5,50,000 Closing Stock 1,50,000
Direct Expenses 15,000
Gross Profit c/d 3,35,000
10,00,000 10,00,000
To Admn. Expenses 50,000 By Gross Profit 3,35,000
Office Establishment 1,50,000 Non-Operating
Income 15,000
Financial Expenses 50,000
Non-Operating Expenses/Losses 50,000
Net Profit 50,000
3,50,000 3,50,000
Balance Sheet
Liabilities Rs. Assets Rs.
Equity Share Capital Land & Buildings 1,50,000

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(2000 @ 100) 2,00,000 Plant & Machinery 1,00,000
Reserves 1,50,000 Stock In Trade 1,50,000
Current Liabilities 1,50,000 Sundry Debtors 1,00,000
P&L A/C Balance 50,000 Cash & Bank 50,000
5,50,000 5,50,000
Calculate Turnover Ratios. Also interpret ratios.

Solution:
𝑆𝑎𝑙𝑒𝑠
i. Share Capital to Turnover Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

𝑆𝑎𝑙𝑒𝑠
=
𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑠+𝑃&𝐿 𝐴/𝑐

8,50,000
= = 2.13 Times
4,00,000

Interpretation:
This turnover ratio indicates that the firm has actually converted its share capital into sales for
about 2.13 times. This ratio indicates the efficiency in use of capital resources and a high
turnover ratio ensures good profitability on operations on an enterprise.

𝑆𝑎𝑙𝑒𝑠
ii. Fixed Assets Turnover Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑

𝑆𝑎𝑙𝑒𝑠
=
𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠

8,50,000
= = 3.14 Times
2,50,000

Interpretation:
Although fixed assets are not directly involved in the process of generating sales, these are said
to back up the production process. A ratio of 3.4 times indicates the efficient utilization of
various fixed assets in this organization.

𝑆𝑎𝑙𝑒𝑠
iii. Net Working Capital Turnover Ratio =
𝑁𝑒𝑡 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

𝑆𝑎𝑙𝑒𝑠
=
𝐴𝑙𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠−𝐴𝑙𝑙 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

8,50,000
= = 5.67 Times
3,00,000−1,50,000

Interpretation:

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Net working capital indicates the excess of current assets financed by permanent sources of
capital. An efficient utilization of such funds is of prime importance to ensure sufficient
profitability along with greater liquidity. A turnover ratio of 5.7 times is really appreciable.

360 𝐷𝑎𝑦𝑠
iv. Average Collection Period =
𝐷𝑒𝑏𝑡𝑜𝑟 ′ 𝑠 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑅𝑎𝑡𝑖𝑜

𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠
Debtor’s Turnover Ratio =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐷𝑒𝑏𝑡𝑜𝑟𝑠
(Assuming that 80% of the total sales is on credit basis, 80% of Rs.8,50,000 = Rs.6,80,000 is
the amount of credit sales)
6,80,000
= = 6.8 Times
1,00,000

360 𝐷𝑎𝑦𝑠
Therefore Average Collection Period = = 53 days
6.8
Interpretation:
Average collection period indicates the time taken by a firm in collecting its debts. The
calculated ratio shows that the realization of cash on credit sales is taking an average period of
53 days. A period of roughly two months indicates that the credit policy is liberal and needs a
correction.

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 𝑆𝑎𝑙𝑒𝑠 –𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡

v. Stock Turnover Ratio = = (𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘+𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘)
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘
2
5,15,000
= 1,25,000 = 4.12 Times

Interpretation:
Stock velocity indicates the firm’s efficiency and profitability. The stock turnover ratio shows
that on an average inventory balances are cleared once in 3 months. Since there is no standard
for this ratio, the period of operating cycle of this firm is to be compared with the industry
average for better interpretation.

Question 4. Comment on the performance of ABC limited from the ratios given below:
Industry average ratios Ratios of ABC ltd.
1. Current ratio 2:1 2.5:1
2. Debt-equity ratio 2:1 1:1
3. Stock turnover ratio 9.5 3.5
4. Net profit margin ratio 23.5% 15.1%

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Solution:
(i) Current Ratio:
This ratio indicates the liquidity position of a firm. The ability of a firm in meeting its current liabilities
could be understood by this ratio. The calculated results show that the liquidity in ABC limited is even
greater than industry average, showing the safety. However, excess liquidity locks up the capital in
unnecessary current assets.

(ii) Debt-Equity Ratio:

It is an indicator of a firm’s solvency in terms of its ability to repay long term loans in time. The
calculated ratio shows better solvency of 1:1 indicating that for every one rupee of debt capital, to
repay one rupee of equity base exists in ABC ltd. However, this ratio is not likely to ensure the leverage
benefits that a firm gains by using higher dose of debt.

(iii) Stock Turnover Ratio:

Stock velocity is an indicator of a firm’s activeness. It directly influences the profitability of a firm. The
calculated ratio for ABC ltd. Is very poor when compared to industry average. This poor ratio indicates
the inefficient use of capacities, consequently, the likely low profitability.

(iv) Net Profit Margin Ratio:

Although the firms in a particular industry could sell the product more or less at same price, the net
profits differ among firms due to their cost of production, excessive administrative and establishment
expenses etc. This picture is found true in case of ABC ltd. A poor profitability of 15.1% compared to an
industry average of 23.5% may be due to low stock turnover, inefficiency in management, excess
overhead cost and excessive interest burdens.
Financial statements by themselves do not give the required information both for internal
management and for outsiders. They must be analyzed and interpreted to get meaningful information
about the various aspects of the concern. Analyzing financial statements is a process of evaluating the
relationship between the component parts of the financial statements to obtain a proper
understanding of a firm’s performance. Financial analysis may be external or internal analysis or
horizontal or vertical analysis. Financial analysis can be carried out through a number of tools like ratio
analysis, funds flow analysis, cash flow analysis etc. Among the various tools available for their analysis,
ratio analysis is the most popularly used tool. The main purpose of ratio analysis is to measure past
performance and project future trends. It is also used for inter-firm and intra-firm comparison as a
measure of comparative productivity. The financial analyst x-rays the financial conditions of a concern
by the use of various ratios and if the conditions are not found to be favourable, suitable steps can be
taken to overcome the limitations.

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Question 5. The Balance Sheet of M/s ABC Ltd. is given below

Balance Sheet as on 31 March 2019

Particulars Rs. Rs.

I Equity And Liabilities
Shareholders’ Funds:-
1
Equity Share Capital 24,00,000
2 Share Application Money Pending Allotment
Non -Current Liabilities
3
10%Debenture 4,60,000
Current Liabilities
Sundry Creditors 4,00,000
4
Bills Payable 3,70,000
Other Current Liabilities 2,20,000 19,80,000
Total Equity And Liabilities 38,50,000
II Assets
Non-Current Assets
5
Fixed Assets 12,10,000
Current Assets
Cash 4,40,000
6
Sundry Debtors 5,50,000
Closing Inventory 16,50,000 26,40,000
Total Assets 38,50,000
The summarised information of profit & loss for the year ended 31 March 2019 is given below:-

Sales 55,00,000
Less Cost Of Goods Sold 40,59,000
Gross profit 14,41,000
Less Selling & Distribution And Admin Exp. 11,64,000
Earnings Before Interest And Tax 2,77,000
Less interest 46,000
2,31,000
Less Tax 1,15,000
Net Profit Available For Distribution 1,15,000
You are required to calculate the following ratios and compare the same with the given industry
average and comment on the strengths and weakness of M/s ABC Ltd. You may make relevant
assumption for the purpose of your comments.

Industry
Ratio to be considered
Average
Current ratio 2.5
Debtors turnover ratio 8.0
Sales/stock (stock turnover ratio) 10.0

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Sales/total assets (total assets turnover ratio 2.0
Net profit as % of sales 3%
Net profit as of total assets 7%
Net profit as % of net worth 10%
Total debts as 5 of total assets 60%

Answer:

Sr. Ratio of Industry

Ratio
No. ABC Ltd. Average

1 Current Assets/Current Liabilities = 26.40/9.90 2.67 2.5

2 Sales/Debtors = 55.00/5.50 10.00 8.0

3 Sales/Stock (Stock Turnover Ratio) = 55.00/16.50 3.33 10.0

Sales/Total Assets (Total Assets Turnover Ratio) = 1.43 2.0
4 55.00/38.50
5 Net Profit As % Of Sales = 1.155/55.00x100 2.1% 3%
6 Net Profit As Of Total Assets 1.155/38.50x100 3% 7%
7 Net Profit As % Of Net Worth =1.155/24.00x100 4.8% 10%
8 Total Debts As 5 Of Total Assets = 14.50/38.50x100 37.66% 60%

Strength Comment
Better Liquidity Current ratio is better than industry norms. It indicators
better liquidity. It may be due to excessive amount of
stock as on 31 March 2019
Good control over debtors Industry allows 1.5 months credit where as M/s ABC
Ltd., allows10 months credit. This is better as compared
to industry norms
Lower amount of debt Total debt as % of total assets is 37.7%. this is very less
as compared to industry norms. Further debt may be
obtained to improve the sales and profitability

Weakness Comment
Sales can be improved by After tax cost of debentures is 5% only i.e. 10%-50% tax
getting further working capital rate
through debentures

Sales can be improved By relaxing credit policy

Stock is very high It can be adjusted by improvement of sales
Low net profit This is due to high cost of goods sold in general and
excessive selling and distribution and administrative
expenses in particular

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Higher assets This is due to excessive stock better utilisation of fixed
assets will improve the profitability.
Low E.P.S More debt can be obtained in order to improve the sales.
Cost reduction measures are be undertaken.
Then the profit will improve and consequential
improvement in E.P.S without increasing the equity base.

Question 6. A Ltd., and B ltd., are two companies belonging to the same industry in 2018-19 each of
them has maintained the inventory almost at the same level at each its inventory stood at the
beginning of the year. The industry has developed the following accounting ratios for inter-firm
comparison:-

Current Ratio 1.8

Liquid ratio 1.1

Gross profit ratio to sales 25%

Return on own capital 40%

Debtors velocity 80 days

Creditors cleocity 75 days

Stock velocity 4
From the following details of A Ltd And B Ltd. relating to financial year 2018-19 comment upon the
financial management And operational efficiency of the two components by calculating the following
ratio, in term of the norms for the industry as stated above:-

1. Current Ratio
2. Liquid Ratio
3. Gross profit ratio
4. Return on capital
5. Debtors velocity ratio
6. Creditors velocity ratio
7. Stock turnover ratio

The following is the summarized statement of income and balance sheet of A Ltd., and B ltd.
Income statement
(All Amounts in Rs. Lakhs)
Particulars A Ltd B ltd
Sales 250 200
(-) Cost of goods sold 200 140
= gross profit 50 60
(-) Operating Expenses 30 25

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Net profit 20 35
Balance sheet
(All Amounts in Rs. Lakhs)
Particulars A Ltd B ltd
I Equity And Liabilities
Shareholders’ Funds:-
1
Equity Share Capital 31.25 100.00
Share Application Money Pending
2
Allotment
Non -Current Liabilities
3
10%Debenture
Current Liabilities
Trade Creditors 65.00 28.00
4
Bank overdraft 25.00 10.00
Liabilities for outstanding expenses 3.00 2.00
Total Equity And Liabilities 124.25 140.00

II Assets
Non current assets
5
Fixed Assets 22.75 58.67
Current Assets
Cash 4.00 8.00
6
Sundry Debtors 62.5 33.33
Closing Inventory 35.00 40.0
Total Assets 124.25 140.00
For calculation of velocity in days 365 days in a year have been considered in all the cases.

Answer:
Industry
Ratio Formula A Ltd B ltd
Average
Current Assets /Current 101.50/93 81.33/40
Current Ratio 1.8
Liabilities = 1.098 = 2.03
Liquid Assets/Liquid
66.5/68.00 41.33/30.00
Liquid Ratio Liabilities 1.1
= 0.98 = 1.38
50/250*100 60/200*100
Gross Profit Ratio Gross Profit/Sales *100 25%
20% 30%
20/31.23*100 35/100*100
Return On Capital Profit/Capital*100 40%
=64% =35%

365/250*62.5 365/200*33.33
Debtors Velocity (In Days) 365/Credit Sales 80 Days
=91 Days =61 Days

365/200*65 365/140*28
Creditors Velocity (In Days) 365/Credit Purchases 75 Days
=119 Days =73 Days
Cost Of Sales/Average 200/35 140/40
Stock Turnover Ratio 4 times
Stock =5.71 times =3.5 times

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Industry
Ratio A Ltd B ltd
average
Current ratio 1.8 1.098 2.03
Liquid ratio 1.1 0.98 1.38
Gross profit ratio 25% 20% 30%
Return on capital 40% 64% 35%
Debtors velocity (in days) 80 Days 91 Days 61 Days

Creditors velocity (in days) 75 Days 119 Days 73 Days

Stock turnover ratio 4 times 5.71 times 3.5 times

Comments
Ratio A Ltd B ltd
Below the industry average not Satisfactory. Good in short
Current Ratio good in short term financial term financial position
position
Below the industry average. Much above the industry
Liquid Ratio
Liquidity position is not good. Average liquidity is best
Below the industry average Higher then industry average
Gross Profit Ratio
and A ltd.,
Far better than industry Lower than the industry
average. This is due to lower average and A Ltd., This is due
Return On Capital
capital of Rs. 31.25 lakhs to higher capital of Rs. 100
Lakhs
Lower than the industry Better than industry average
Debtors Velocity (In Days) average. Realisation from and A ltd.
debtors is to be improved
It is taking more time to pay its It is paying less time to pay its
creditors. Hence it may be creditors.
Creditors Velocity (In Days) paying higher cost towards
material which is major
component of cost of goods sold
Better than industry average. Lower than industry average.
This is due to lower investment This is due to higher
Stock Turnover Ratio is stock which is 35 lakhs for a investment is stock which is 40
sales of Rs 250 lakhs lakhs for a sales of Rs 200
lakhs

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Module 5
Analysis of financial Statement – II: Techniques of Financial statement Analysis (Common size
statement, Trend Analysis, Inter Firm Comparison, Intra Firm Comparison) Du-Pont Analysis

CO5: Given the financial statements a student will be able to formulate common size statement,
trend analysis as well as inter-firm and intra firm comparison (As compared to its peers or year on
year basis.)

Question 1. From the following Profit and Loss Account and Balance sheet of XYZ Ltd for the year
ended 2017 and 2018. You are required to prepare a Comparative Income Statement and
Comparative Balance sheet. Also give comments on the Profitability and Financial performance of
the XYZ Ltd
Profit and Loss Account
Dr. Cr.
Particulars 2017 2018 Particulars 2017 2018
To cost of goods sold 6000 7500 By, Net Sales 8000 10000
To Operating Expenses :
Administrative 200 200
Selling 300 400
To, Net Profit 1500 1900
8000 10000 8000 10000
Balance Sheet as on 31st December
Liabilities 2017 2018 Assets 2017 2018
Bills Payable 500 750 Cash 1000 1400
Sundry Creditors 1500 2000 Debtors 2000 3000
Tax Payable 1000 1500 Stock 2000 3000
6% Debenture 1000 1500 Land 1000 1000
10% Preference Capital 3000 3000 Building 3000 2700
Equity Capital 4000 4000 Plant 3000 2700
Reserves 2000 2450 Furniture 1000 1400
13000 15200 13000 15200

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Solution :
XYZ Ltd
COMPARATIVE INCOME STATEMENT
For the Year Ended 31st December 2017 and 2018
Particulars 2017 2018 Increase(+) / Decrease(-)

Base year Absolute Percentage

Net Sales 8000 10000 +2000 +25
Less : Cost of Goods Sold 6000 7500 +1500 +25
GROSS PROFIT ( A) 2000 2500 +500 +25
Less : Operating Expenses:
Administrative 200 200 -- -
Selling 300 400 +100 +33.3
TOTAL OPERATING EXPENSES (B) 500 600 +100 +20
OPERATING PROFIT (A-B) 1500 1900 +400 +26.7

XYZ Ltd
COMPARATIVE BALANCE SHEET
For the Year Ended 31st December 2017 and 2018
Particulars 2017 2018 Increase(+) / Decrease(-)
Absolute Percentage
ASSETS :
CURRENT ASSETS-
Cash 1000 1400 +400 +40
Debtors 2000 3000 +1000 +50
Stock 2000 3000 +1000 +50
(A) TOTAL CURRENT ASSETS 5000 7400 +2400 +48
FIXED ASSETS-
Land 1000 1000 - -
Building 3000 2700 -300 -10
Plant 3000 2700 -300 -10
Furniture 1000 1400 +400 +40
(B) TOTAL FIXED ASSETS 8000 7800 -200 -2.5

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TOTAL ASSETS ( A+B) 13000 15200 +2200 +17
LIABILITIES & CAPITAL
CURRENT LIABILITIES-
Bills Payable 500 750 +250 +50
Sundry Creditors 1500 2000 +500 +33.3
Taxes Payable 1000 1500 +500 +50
TOTAL CURRENT LIABILITIES 3000 4250 +1250 +41.7
LONG TERM LIABILITIES-
6% Debenture 1000 1500 +500 +50
(C) TOTAL LIABILITIES 4000 5750 +1750 +43.75
CAPITAL & RESERVES-
10% Preference Capital 3000 3000 - -
Equity Capital 4000 4000 - -
Reserves 2000 2450 +450 +22.5
(D) TOTAL SHAREHOLDERS 9000 9450 +450 +5
FUND
TOTAL LIABILITIES & CAPITAL ( C+D) 13000 15200 +2200 +17

Comment:
The Income Statement Shows that though the sales have gone up in 2018, the rate of Gross Profit
remains at 25%. The Cost of Goods sold and its percentage remains at 75% .Administrative expenses
remains the same but selling expenses have been increased. This is due to increase in sales. The rate of
Net Profit is also increased.
The Comparative Balance Sheet shows the absolute changes in their Assets and Liabilities with respect
to year 2017.There are mostly increase in every asset & Liabilities except in Building & Plant & this may
be because of Depreciation.

Question 2. The Balance Sheets of Sunny & Co. and Honey & Co. are given as follows:
BALANCE SHEET As on 31st December 2018
Sunny & Co. Honey & Co.
LIABILITIES Rs Rs
Preference Share Capital 1,20,000 1,60,000
Equity Share Capital 1,50,000 4,00,000
Reserve & Surplus 14,000 18,000

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Long –Term Loans 1,15,000 1,30,000
Bills Payable 2000 -
Sundry Creditors 12,000 4,000
Outstanding Expenses 15,000 6,000
Proposed Dividend 10,000 90,000
4,38,000 8,08,000
ASSETS Rs RS
Land & Building 80,000 1,23,000
Plant & Machinery 3,34,000 6,00,000
Short Term Investment 1,000 40,000
Inventories 10,000 25,000
Book Debts 4,000 8,000
Prepaid Expenses 1,000 2,000
Cash & Bank Balance 8,000 10,000
4,38,000 8,08,000
Compare the Financial Position of Two companies with the help of Common Size Balance Sheet and
Comment on their financial performance.
Solution
COMMON SIZE BALANCE SHEET As on 31st December 2018
Sunny & Co Honey & Co.
Amount ( RS) Percentage (%) Amount ( RS) Percentage (%)
Assets :
Fixed Assets-
Land & Building 80,000 18.26 1,23,000 15.22
Plant & Machinery 3,34,000 76.26 6,00,000 74.62
(A) Total Fixed Assets 4,14,000 94.52 7,23,000 89.48
Current Assets
Short Term Investment 1,000 0.23 40,000 4.95
Inventories 10,000 2.28 25,000 3.08
Book Debts 4,000 0.91 8,000 0.99
Prepaid Expenses 1,000 0.23 2,000 0.25
Cash &Bank Balance 8,000 1.83 10,000 1.25

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(B) Total Current Assets 24,000 5.48 85,000 10.52
Total Assets ( A+B) base 4,38,000 100.00 8,08,000 100.00
Share Capital & Reserves
Preference Share Capital 1,20,000 27.39 1,60,000 19.80
Equity Share Capital 1,50,000 34.25 4,00,000 49.50
Reserves & Surplus 14,000 3.49 18,000 2.23
(C) Total Capital & Reserves 2,84,000 64.83 5,78,000
(D) Long Term Loans 1,15,000 26.25 1,30,000 16.09
Current Liabilities
Bills Payable 2,000 0.46 - -
Sundry Creditors 12,000 2.74 4,000 0.49
Outstanding Expenses 15,000 3.44 6,000 0.74
Proposed Dividend 10,000 2.28 90,000 11.15
(E) Total Current Liabilities 39,000 8.92 1,00,000 12.38
Total Liabilities base 4,38,000 100.00 8,08,000 100.00
Comments:
1. An analysis of pattern of financing of both the companies shows that Honey & Co is more
traditionally financed as compared to Sunny & Co.
2. In Sunny & Co proprietors fund are 64.83% while outsiders share is 35.17%, which shows that this
company has depended more upon outsider’s fund
3. Both the companies are suffering from inadequacy of working capital because the percentage of
current liabilities is more than percentage of current assets.
4. Both the companies face working capital problem and immediate steps should be taken to issue
more capital or raise long-term loans to raise working capital position.

Question 3. Following are the Income Statements of a company for the years ending December 31 st
2017 and 2018 :
Particulars 2017 ( Rs. in’000) 2018 ( Rs. in ‘000)
Sales 500 700
Miscellaneous Income 20 15
520 715
Expenses :
Cost of Sales 325 510
Office Expenses 20 25

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Selling Expenses 30 45
Interest 25 30
400 610
Net Profit 120 105
520 715
Compare the income statement of the two years with the help of Common size Statement and
interpret the results obtained on the overall profitability of the company.

Solution:
COMMON SIZE INCOME STATEMENT As on 31st December 2018
2017 2018
Amount Percentage Amount Percentage (%)
( RS in ‘000) (%) ( RS in 000)
Sales base 500 100.00 700 100.00
Less : Cost of Sales 325 65.00 510 72.86
GROSS PROFIT (A) 175 35.00 190 27.14
Operating Expenses :
Office Expenses 20 4.00 25 3.58
Selling Expenses 30 6.00 45 6.42
TOTAL OPERATING EXPENSES (B) 50 10.00 70 10.00
OPERATING PROFIT (A-B) 125 25.00 120 17.14
(+) Misc. Income 20 4.00 15 2.14
TOTAL INCOME 145 29.00 135 19.28
Less: Non-Operating Expenses-
Interest 25 5.00 30 4.28
NET PROFIT 120 24.00 105 15.00
Interpretation:
1. The Sales and Gross Profit has increased in absolute figures in 2018 as compared to 2017 but
the percentage of Gross Profit to Sales has gone down in 2018.
2. The increase in Cost of Sales as percentage of Sales has brought the profitability down from
35% to 27.14%
3. Operating Expenses have remained the same in both the Years but the non-operating expenses
have decreases as a percentage in 20189.

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4. Net Profit has decreased both in absolute figures and as a percentage in 2018 as compared to
2017.
5. The overall Profitability has decreased in 2018 and the reason is a rise in cost of sales. The
company should take immediate steps to control its cost of sales.

Question 4. The following is the summarised Profit and Loss Account of SBI for the year ended 31st
December 2016, 2017 & 2018. Prepare Trend analysis and interpret the results.
INCOME STATEMENT
Particular December 2016 December 2017 December 2018
INCOME
Interest Earned 8020.84 11,631.63 15,272.63
Other Income 1751.26 1475.72 2,341.96
TOTAL INCOME (A) 9772.10 13107.35 17614.59
EXPENDITURE
Interest Expended 7364.41 10305.72 13005.22

Employee Cost 384.61 569.24 756.99

Selling & Administrative Expenses 365.50 504.21 720.90

Depreciation 83.50 52.70 90.98

Misc.Expenses 844.62 816.93 2009.37

Operating Expenses 1092.36 1481.66 2067.76
Provision & contingencies 585.87 461.42 1510.48

TOTAL EXPENSES (B) 9042.64 12248.80 16583.46

NET PROFIT (A-B) 729.46 858.54 1031.13

Answer:
Particular December December December Trend Analysis
2016 2017 2018

base
2016 2017 2018
base
INCOME
Interest Earned 8020.84 11,631.63 15,272.63 100.00 145.01 190.41
Other Income 1751.26 1475.72 2,341.96 100.00 84.27 133.73
TOTAL INCOME (A) 9772.10 13107.35 17614.59 100.00 134.13 180.25

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 Course: Financial Statement Reporting and Analysis
EXPENDITURE
Interest Expended 7364.41 10305.72 13005.22 100.00 139.94 176.60
Employee Cost 384.61 569.24 756.99 100.00 148.00 196.82
Selling & Admin. Exp. 365.50 504.21 720.90 100.00 137.95 197.24
Depreciation 83.50 52.70 90.98 100.00 61.11 108.96
Misc .Expenses 844.62 816.93 2009.37 100.00 96.72 237.90
Operating Expenses 1092.36 1481.66 2067.76 100.00 135.46 189.29
Provision & 585.87 461.42 1510.48 100.00 78.76 257.82
Contingencies
TOTAL EXPENSES (B) 9042.64 12248.80 16583.46 100.00 135.46 183.39
NET PROFIT (A-B) 729.46 858.54 1031.13 100.00 117.70 141.36
Comment: The Trend percentages are immediately helpful in making comparative study of the Income
Statement. The above trend percentages shows positive sign to the business as most of the items show
upward trend. With the base year 2016 each item is taken as 100 and on that basis the percentages for
each of the items of each of the years are calculated and it shows upward trend. These percentages
values show relative changes in the financial data resulting with passage of time.

Question 5. The following is the summarised Balance Sheet of Bank of India as on 31st December
2016, 2017 & 2018. Prepare Trend analysis and interpret the results.
BALANCE SHEET (AS ON 31st DECEMBER) Rs in Millions
Particular December 2016 December 2017 December 2018
CAPITAL & LIABILITIES
Equity Share Capital 724.76 724.78 724.86
Reserves 6075.13 6719.52 7502.26
Revaluation Reserves 2022.07 1979.56 1937.72
NET WORTH 8821.96 9423.86 10164.84
Deposits 72997.98 112401.01 167667.08
Borrowings 38612.55 44417.04 47709.48
TOTAL DEBTS 111610.53 156818.05 215316.56
Other Liabilities & Provisions 10261.89 6160.40 8030.62
TOTAL LIABILITIES 130694.38 172402.31 233572.02
ASSETS
Cash & Balance with RBI 6694.83 8590.82 13903.47

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Balance with Banks, Money at Call 2063.94 2628.50 679.36
Advances 82212.69 103428.34 138201.85
Investments 32802.93 50047.60 73345.46
Gross Block 3894.76 3873.95 4085.27
Accumulated Depreciation 1173.59 1127.40 1250.35
NET BLOCK 2721.17 2746.55 2834.92
Capital W-I-P 44.80 77.56 162.04
Other Assets 4154.02 4882.96 4444.91
TOTAL ASSETS 130694.38 172402.31 233572.02

Answer:
Particular December December December Trend Analysis
2016 2017 2018
2016 2017 2018
CAPITAL & LIABILITIES
Equity Share Capital 724.76 724.78 724.86 100.00 100.00 100.00
Reserves 6075.13 6719.52 7502.26 100.00 110.60 123.50
Revaluation Reserves 2022.07 1979.56 1937.72 100.00 97.90 95.83
NET WORTH 8821.96 9423.86 10164.84 100.00 106.82 115.22
Deposits 72997.98 112401.01 167667.08 100.00 153.98 229.69
Borrowings 38612.55 44417.04 47709.48 100.00 115.03 123.56
TOTAL DEBTS 111610.53 156818.05 215316.56 100.00 140.50 192.97
Other Liabilities & Provisions 10261.89 6160.40 8030.62 100.00 60.03 78.26
TOTAL LIABILITIES 130694.38 172402.31 233572.02 100.00 131.91 178.72
ASSETS
Cash & Balance with RBI 6694.83 8590.82 13903.47 100.00 128.32 207.67
Balance with Banks, Money 2063.94 2628.50 679.36 100.00 127.35 32.92
at Call
Advances 82212.69 103428.34 138201.85 100.00 126.17 168.02
Investments 32802.93 50047.60 73345.46 100.00 152.57 223.59
NET BLOCK 2721.17 2746.55 2834.92 100.00 100.93 104.18
Capital W-I-P 44.80 77.56 162.04 100.00 173.13 361.70

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Other Assets 4154.02 4882.96 4444.91 100.00 117.55 107.00
TOTAL ASSETS 130694.38 172402.31 233572.02 100.00 131.91 178.72

Trend Analysis
Question 6. Calculate the trend percentages from the following figures of sales, stock and profit of X
Ltd., taking 2015 as the base year and interpret them.
(Rs. in lakhs)
Year Sales (Rs.) Stock (Rs.) Profit before tax (Rs.)
2015 1881 709 321
2016 2340 781 435
2017 2655 816 458
2018 3021 944 527
2019 3768 1154 627

Answer:
Trend percentage Base year is 2015 = 100
(Rs. in lakhs)
Year Sales Trend % Stock Trend % Profit before tax Trend %
2015 base 1881 100 709 100 321 100
2016 2340 124 781 110 435 136
2017 2655 141 816 115 458 143
2018 3021 161 944 133 527 164
2019 3768 200 1154 163 627 195
Interpretation:
1. The sales have continuously increased in all the years up to 2019, though indifferent proportions.
The percentage in 2019 is 200 as compared to 100 in 2015. The increase in sales is quite
satisfactory.
2. The figures of stock have also increased over a period of five years. The increase in stock is more in
2018 and 2019 as compared to earlier years.
3. Profit has substantially increased. The profits have increased in greater proportion than sales which
implies that the company has been able to reduce their cost of goods sold and control the
operating expenses.

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Question 7. From the following data relating to the assets of Balance Sheet of ABC Ltd., for the
period ended March 31, 2011 to March 31, 2014, calculate trend percentages.
(Rs. in lakhs)
Particulars 2010-11 2011-12 2012-13 2013-14
Cash 100 120 80 140
Debtors 200 250 325 400
Stock 300 400 350 500
Other current assets 50 75 125 150
Land 400 500 500 500
Building 800 1,000 1,200 1,500
Plant 1,000 1,000 1,200 1,500

Answer:-
Trend Percentage
(Rs. in lakhs)
2010-11 Trend 2011-12 Trend 2012-13 Trend 2013-14 Trend
% % % %
base base
Current Assets
Cash 100 100 120 120 80 80 140 140
Debtors 200 100 250 250 325 162.5 400 200
Stock 300 100 400 400 350 116.67 500 166.67
Other current assets 50 100 75 75 125 250 150 300
650 100 845 130 880 135.38 1190 183.08
Noncurrent assets
Land 400 100 500 125 500 125 500 125
Building 800 100 1,000 125 1,200 150 1,500 187.5
Plant 1,000 100 1,000 100 1,200 120 1,500 150
2,200 100 2,500 113.64 2,900 131.82 3,500 159.00
Total assets 2,850 100 3,345 117.36 3,780 132.63 4690 164.56
Interpretation:
1. The assets have exhibited a continuous increasing trend over the period.
2. The current assets increased much faster than the Non-current assets.
3. Sundry debtors and other current assets and buildings have shown higher growth.

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 Course: Financial Statement Reporting and Analysis
Question 8. From the following data relating to the Equity and liabilities of balance sheet of X Ltd.,
for the period March 31, 2010 to 2013, calculate the trend percentages taking 2010-11 as the base
year.
(Rs. in lakhs)
Particulars 2010-11 2011-12 2012-13 2013-14
Equity Share Capital 1,000 1,000 1,200 1,500
General Reserve 800 1,000 1,200 1,500
12% Debentures 400 500 500 500
Bank overdraft 300 400 550 500
Trade payable 100 120 80 140
Sundry creditors 300 400 500 600
Outstanding liabilities 50 75 125 150

Answer:-
Trend Percentage
(Rs. in lakhs)
Particulars 2010-11 Trend 2011-12 Trend 2012-13 Trend 2013-14 Trend
% % % %
base base
Equity Share Capital 1,000 100 1,000 100 1,200 120 1,500 150

General Reserve 800 100 1,000 125 1,200 125 1,500 187.5

Total 1,800 100 2,000 111.11 2,400 133.33 3,000 166.67

Long term Debts

12% Debentures 400 100 500 125 500 125 500 125

Total 400 100 500 125 500 125 500 125

Current liabilities
Bank overdraft 300 100 400 133.33 550 183.33 500 166.67

Trade payable 100 100 120 120 80 80 140 140

Sundry creditors 300 100 400 133.33 500 166.67 600 200

Outstanding liabilities 50 100 75 150 125 250 150 300

Total 750 100 995 132.67 1,255 167.33 1,390 185.33

Total Equity & Liabilities 2,950 100 3,495 118.47 4,155 140.85 4,890 165.76

Interpretation:
1. Shareholders’ funds have increased over the period because of retention of profits in the business in
the form of reserves, and the share capital has also increased, may be due to issue of fresh shares or
bonus shares.

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2. The increase in current liabilities is more than that of long-term debt. This may be due to expansion
of business and/or availability of greater credit activities.

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