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Assignment 5

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  • 1. 1 Assignment V - Financial Statement Analysis Q.1 From the following particulars relating to AB Co. prepare a Balance Sheet as on 31.12.2009: Fixed assets / turnover ratio 1:2 Debt collection period Two months Gross profit 25% Consumption of raw materials 40% of cost Stock of Raw materials 4 months consumption Finished goods 20% of turnover at cost Fixed Assets to Current Assets 1:1 Current Ratio 2:1 Long Term loan to current Liability 1:3 Capital to Reserve 5:2 Value of Fixed Assets Rs. 10,50,000 Q.2 From the following particulars prepare the Balance Sheet of A Ltd.: Current Ratio 1.50 Current Assets/Fixed Assets 1:2 Fixed Assets to turnover 1:1 Gross Profit 25% Debtors Velocity 2 months Creditors Velocity 2 months Stock Velocity 3 months Debt equity ratio 2:5 Working Capital Rs. 2,00,000 Q.3 From the following information, you are required to prepare a Balance Sheet: Current Ratio 1.75 Liquid Ratio 1.25 Stock Turnover ratio (Closing Stock) 9 Gross profit ratio 25% Debt collection period 1.50 months Reserves and surplus to capital 0.20 Turnover to fixed assets 1.20 Fixed assets to net worth 1.25 Sales for the year Rs. 12,00,000
  • 2. 2 Q. 4 Mr. Desai intends to supply goods on credit to A Ltd. and B Ltd. The relevant financial data relating to the companies for the year ended 30th June, 2009 are as under: A Ltd. B Ltd. Stock 8,00,000 1,00,000 Debtors 1,70,000 1,40,000 Cash 30,000 60,000 Trade Creditors 3,00,000 1,60,000 Bank overdraft 40,000 30,000 Creditors for expenses 60,000 10,000 Total purchases 9,30,000 6,60,000 Cash purchases 30,000 20,000 Advice with reasons, as to which of the companies he should prefer to deal with. Q.5 The following is the Trading & Profit & Loss A/c of X Ltd. As on December 31, 2008: Trading & P&L Account (31.12.2008) Opening Stock 1,30,000 Cash Sales 80,000 Purchases 4,20,000 Credit Sales 3,20,000 G.P. 60,000 Stock 2,10,000 Depreciation 13,100 G.P. 60,000 G. Expenses 20,900 Director’s Fees 10,000 N.P. 16,000 60,000 60,000 Balance Sheet as at 31st December, 2008 Share Capital 3,60,000 Fixed Assets 2,05,600 Profit & Loss A/c 24,600 Stock 2,10,000 Creditors 1,40,000 Debtors 1,60,000 Bank overdraft 51,000 5,75,000 5,75,000 1. The rate of stock turnover is to be doubled. 2. Stock is to be reduced by Rs. 60,000 by the end of the financial year. 3. The ratio of cash sales to Credit sales is to be doubled. 4. Directors – remuneration are to be increased by Rs. 15,000. 5. Rate of gross profit to sales is to be increased by 331/3%. 6. The ratio of trade creditors to closing stock and the ratio of debtors to credit sales will remain the same as in the year just ended.
  • 3. 3 7. General expenses and depreciation are to remain the same. Draft budgeted Trading and Profit and loss account and balance sheet, assuming that the objectives had been achieved. Q.6 You are given the following figures worked out from the profit and loss account and balance sheet of Z Ltd. relating to the year 2008. Prepare the balance sheet. Fixed Assets (net after writing off 30%) Rs. 10,50,000 Fixed Assets Turnover ratio 2 Finished goods turnover ratio 6 Rate of gross profit to sales 25% Net profit (before interest) to sale 8% Fixed charges over (debenture interest 7%) 8 Debt collection period 1½ months Material consumed to sales 30% Stock of raw materials (in terms of number of month’s consumption) 8 Current ratio 2.4 Quick ratio 1.0 Reserves to capital 0.20 Q.7 The summarized Balance Sheet of X Ltd. as at 31st December 2008 and its summarized Profit and Loss Account for the year ended on that date, are as follows. The corresponding figures of the previous year are also shown: Balance Sheet Liabilities 2008 2007 Assets 2008 2007 (Rs. in lakhs ) (Rs. in lakhs) Share capital 60,000 shares of Rs. 100 each 60.00 60.00 Fixed Assets – At cost less Depreciation: Reserve & Surplus 29.25 24.00 Property Plant 21.00 61.50 18.00 48.00 8% Debenture 15.00 15.00 82.50 66.00 Current Liabilities & Provisions : Current Assets - Sundry Creditors 45.75 24.00 Stock of finished goods 42.75 31.50 Provision for Taxation 13.50 10.50 Sundry Debtors 41.25 30.00 Proposed Dividend 4.50 63.75 3.00 Bank 1.50 85.50 9.00 Total : 168.00 136.50 168.00 136.50
  • 4. 4 Trading & Profit and Loss Account 2008 2007 2008 2007 (Rs. in lakhs) (Rs. in lakhs) Cost of Sales 162.00 135.00 Sales (all credit) 225.00 180.00 Gross Profit C/d 63.00 45.00 225.00 180.00 225.00 180.00 Overhead Expenses 43.50 30.00 Gross Profit b/d 63.00 45.00 Net Profit before taxation 19.50 15.00 63.00 45.00 63.00 45.00 Provision for taxation 8.25 6.30 Net profit b/d 19.50 15.00 Dividend-paid and Proposed 6.00 4.50 Surplus for the year carried to Balance Sheet 5.25 4.20 19.50 15.00 19.50 15.00 You are required to interpret the above statement using significant accounting ratios. Q.8 X Ltd. has been existence for two years. Summarized Balance Sheets as on 31st December, 2007 and 31st December, 2008 are given below: Balance Sheet (Figures in lakhs of rupees) Liabilities 2008 2007 Assets 2008 2007 Equity shares of Rs. 100 each 2 2 Fixed Assets (Less Dep.) 4.16 3.96 Reserves .20 .40 Stock .60 1.20 Profit & Loss A/c .28 .04 Debtors .80 1.60 Loans on Mortgage 2.20 1.60 Cash and Bank Balances .60 .04 Bank overdraft .40 Creditors .60 1.80 Provision for Taxation .68 .26 Proposed Dividend .20 .30 6.16 6.80 6.16 6.80 You are also given the Profit and Loss Account of the Company for the two years. Profit & Loss Account (Figures in lakhs of rupees) 2008 2007 2008 2007 Interest on Loan .048 .096 Balance B/F - .28 Directors’ Remuneration .20 .60 Profit for the year after running costs & Depreciation 1.608 1.216 Provision for Taxation .68 .26 Dividends .20 .30 Transfer to Reserve .20 .20 Balance C/F .28 .04 1.608 1.496 1.608 1.496 Total Sales amounted to Rs. 12 lakhs in 2007 and Rs. 10 lakhs in 2008. Make a through overall analysis of this company.

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