Fma financial accounting assignments with solutionsDocument Transcript
Assignment I - JournalQ.1 Journalize the following relating to April 2009: Particulars Rs. 1. R. started business with 1,00,000 2. He purchased furniture for 20,000 3. Paid salary to his clerk 1,000 4. Paid rent 5,000 5. Received interest 2,000Solution: Debit Amount Credit Date Particulars Ledger Folio (Rs) Amount (Rs) 1 Cash A/c Dr 100,000 To Capital A/c 100,000 2 Furniture A/c Dr 20,000 To Cash A/c 20,000 3 Salary A/c Dr 1,000 To Cash A/c 1,000 4 Rent A/c Dr 5,000 To Cash A/c 5,000 5 Cash A/c Dr 2,000 To Interest A/c 2,000
Q.2 Journalize transactions of M/s X & Co. for the month of March 2009 on the basis ofdouble entry system:1. X introduced cash Rs. 4,00,000.2. Cash deposited in the Citibank Rs. 2,00,000.3. Cash loan of Rs. 50,000 taken from Y.4. Salaries paid for the month of March 2009, Rs. 30,000 and Rs. 10,000 is still payable for themonth of March 2009.5. Furniture purchased Rs. 50,000.Solution: Debit Amount Credit Amount Date Particulars Ledger Folio (Rs) (Rs) 1 Cash A/c Dr 400,000 To Captial (X) A/c 400,000 2 Bank A/c Dr 200,000 To Cash A/c 200,000 3 Cash A/c Dr 50,000 To Y A/c 50,000 4 Salary A/c Dr 40,000 To Cash A/c 30,000 To Outstanding Salary A/c 10,000 5 Furniture A/c Dr 50,000 To Cash A/c 50,000
Q.3 Journalize the following transactions.1. December 1, 2008, Ajit started-business with cash Rs. 4,00,000.2: December 3, he paid into the bank Rs. 20,000.3. December 5, he purchased goods for cash Rs. 1,50,000.4. December 8, he sold goods for cash Rs. 60,000.5. December 10, he purchased furniture and paid by cheque Rs. 50,000.6. December 12, he sold goods to Arvind Rs. 40,000.7. December 14, he purchased goods from Amrit Rs. 1,00,000.8. December 15, he returned goods to Amrit Rs. 50,000.9. December 16, he received from Arvind Rs. 39,600 in full settlement.10. December 18, he withdrew goods for personal use Rs. 10,000.11. December 20, he withdrew cash from business for personal use Rs. 20,000.12. December 24, he paid telephone charges Rs. 10,000.13. December 26, cash paid to Amrit in full settlement Rs. 49,000.14. December 31, paid for stationery Rs. 2,000, rent Rs. 5,000 and salaries to staff Rs. 20,000.15. December 31, goods distributed by way of free samples Rs. 10,000.16. December 31, wages paid for erection of Machinery Rs. 80,000.17. Personal income tax liability of X of Rs. 17,000 was paid out of petty cash of business.18. Purchase of goods from Naveen of the list price of Rs. 20,000. He allowed 10% tradediscount, Rs. 500 cash discount was also allowed for quick payment.Solution: Debit Amount Credit Amount Date Particulars Ledger Folio (Rs) (Rs) 1-Dec-08 Cash A/c Dr 400,000 To Capital A/c 400,000 3-Dec-08 Bank A/c Dr 20,000 To Cash A/c 20,000 5-Dec-08 Purchase A/c Dr 150,000 To Cash A/c 150,000 8-Dec-08 Cash A/c Dr 60,000 To Sales A/c 60,000 10-Dec-08 Furniture A/c Dr 50,000 To Bank A/c 50,000 12-Dec-08 Arvind A/c Dr 40,000 To Sales A/c 40,000 14-Dec-08 Purchase A/c Dr 100,000 To Amrit A/c 100,000
15-Dec-08 Amrit A/c Dr 50,000 To Purchase Returns A/c 50,00016-Dec-08 Cash A/c Dr 39,600 Discount A/c Dr 400 To Arvind A/c 40,00018-Dec-08 Drawings Dr 10,000 To Purchase A/c 10,00020-Dec-08 Drawings Dr 20,000 To Cash A/c 20,00024-Dec-08 Telephone A/c Dr 10,000 To Cash A/c 10,00026-Dec-08 Amrit A/c Dr 50,000 To Cash A/c 49,000 To Discount A/c 1,00031-Dec-08 Stationery A/c Dr 2,000 Rent A/c Dr 5,000 Salary A/c Dr 20,000 To Cash A/c 27,00031-Dec-08 Advertising A/c Dr 10,000 To Purchase A/c 10,00031-Dec-08 Machinery A/c Dr 80,000 To Cash A/c 80,00031-Dec-08 Drawings Dr 17,000 To Petty Cash A/c 17,00031-Dec-08 Purchase A/c Dr 18,000 Discount A/c Dr 500 To Cash A/c 17,500
Q 4 Transactions of Ramesh for April are given below. Journalize them.2009 Rs.April 1 Ramesh started business with 1,00,000April 2 Paid into bank 70,000April 3 Bought goods for cash 5,000April 5 Drew cash from bank for credit 1,000April 13 Sold to Krishna goods on credit 1,500April 20 Bought from Shyam goods on credit 2,250April 24 Received from Krishna 1,450 Allowed him discount 50April 28 Paid Shyam cash 2,150 Discount allowed 100April 30 Cash sales for the month 8,000 Paid Rent 500 Paid Salary 1,000Solution: Debit Amount Credit Amount Date Particulars Ledger Folio (Rs) (Rs) 1-Apr Cash A/c Dr 100,000 To Capital (X) A/c 100,000 2-Apr Bank A/c Dr 70,000 To Cash A/c 70,000 3-Apr Purchase A/c Dr 5,000 To Cash A/c 5,000 5-Apr Cash A/c Dr 1,000 To Bank A/c 1,000 13-Apr Krishna A/c Dr 1,500 To Sales A/c 1,500 20-Apr Purchase A/c Dr 2,250 To Shyam A/c 2,250 24-Apr Cash A/c Dr 1,450 Discount A/c Dr 50 To Krishna A/c 1,500 28-Apr Shyam A/c Dr 2,250 To Discount A/c 100 To Cash A/c 2,150
30-Apr Cash A/c Dr 8,000 To Sales A/c 8,000 Rent A/c Dr 500 Salary A/c Dr 1,000 To Cash A/c 1,500
Assignment II – LedgerQ. 1 Prepare the Stationery Account of a firm for the year ended December 31, 2008:2008 Particulars Rs.January 1 Stock in hand 480April 5 Purchase of stationery by cheque 800November 15 Purchase of stationery on credit from Five Star Stationery Mart 1,280December 31 Stock in hand 240Solution: Stationery A/c Amount Date Particulars (Rs) Date Particulars Amount (Rs) 1-Jan To Balance b/d 480 5-Apr To Bank A/c 800 To Five Star15-Nov Stationery Mart 1,280 By Profit and Loss A/c 2,320 31-Dec By Balance c/d 240 2,560 2,560
Q.2 Prepare a ledger from the following transactions in the books of a traderDebit Balance on January 1, 2008:Cash in Hand Rs. 8,000, Cash at Bank Rs. 25,000, Stock of Goods Rs. 20,000, Building Rs.10,000. Sundry Debtors: Vijay Rs. 2,000 and Madhu Rs. 2,000.Credit Balances on January 1, 2008:Sundry Creditors: Anand Rs. 5,000.Following were further transactions in the month of January 2008:January 1 Purchased goods worth Rs. 5,000 for cash less 20% trade discount and 5% cash discount.January 4 Received Rs. 1,980 from Vijay and allowed him Rs. 20 as discount.January 8 Purchased plant from Mukesh for Rs. 5,000 and paid Rs. 100 as cartage for bringing the plant to the factory and another Rs. 200 as installation charges.January 12 Sold goods to Rahim on credit Rs. 600.January 15 Rahim became insolvent and could pay only 50 paise in a rupee.January 18 Sold goods to Ram for cash Rs. 1,000.Solution: Cash A/c Amount Amount Date Particulars (Rs) Date Particulars (Rs) 1-Jan To Balace b/d 8,000 1-Jan By Purchase A/c 3,800 4-Jan To Vijay A/c 1,980 To Plant & Machinery 8-Jan A/c 300 15-Jan To Rahim A/c 300 18-Jan To Ram A/c 1,000 31-Jan By Balance c/d 7,780 11,580 11,580 Bank A/c Amount Amount Date Particulars (Rs) Date Particulars (Rs) 1-Jan To Balance b/d 25,000
31-Jan By Balance c/d 25,000 25,000 25,000 Purchase A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 1-Jan To Balance b/d 20,000 1-Jan To Cash A/c 3,800 1-Jan To Discount A/c 200 31-Jan By Balance c/d 24,000 24,000 24,000 Building A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 1-Jan To Balance b/d 10,000 31-Jan By Balance c/d 10,000 10,000 10,000 Vijay A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 1-Jan To Balance b/d 2,000 4-Jan By Cash A/c 1,980 4-Jan By Discount A/c 20 2,000 2,000
Madhu A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 1-Jan To Balance b/d 2,000 31-Jan By Balance c/d 2,000 2,000 2,000 Anand A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 1-Jan By Balance b/d 5,00031-Jan To Balance c/d 5,000 5,000 5,000 Discount A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 1-Jan By Purchase A/c 200 4-Jan To Vijay A/c 2031-Jan To Balance c/d 180 200 200 Mukesh A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) By Plant & Machinery 8-Jan A/c 5,000
31-Jan To Balance c/d 5,000 5,000 5,000 Sales A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 12-Jan By Rahim A/c 600 18-Jan By Cash A/c 1,00031-Jan To Balance c/d 1,600 1,600 1,600 Rahim A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs)12-Jan To Sales A/c 600 15-Jan By Cash A/c 300 15-Jan By Bad Debt A/c 300 600 600 Plant & Machinery A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 8-Jan To Mukesh A/c 5,000 8-Jan To Cash A/c 300 31-Jan By Balance c/d 5,300 5,300 5,300
Bad Debt A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs)15-Jan To Rahim A/c 300 31-Jan By Balance c/d 300 300 300
Q. 3 The following data is given by Mr. S, the owner, with a request to compile only the twopersonal accounts of Mr. H and Mr. R, in his ledger, for the month of April 2008.1 Mr. S owes Mr. R Rs. 15,000; Mr. H owes Mr. S Rs. 20,000.4 Mr. R sold goods worth Rs. 60,000 @ 10% trade discount to Mr. S.5 Mr. S sold to Mr. H goods prices at Rs.30,000.17 Record purchase of Rs. 25,000 net from R, which were sold to H at profit of Rs. 15,000.18 Mr. S rejected 10% of Mr. R’s goods of 4th April.19 Mr. S issued a cash memo for Rs. 10,000 to Mr. H who came personally for this consignment of goods, urgently needed by him.22 Mr. H cleared half his total dues to Mr. S, enjoying a ½% cash discount (of the payment received, Rs. 20,000 was by cheque).26 R’s total dues (less Rs. 10,000 held back) were cleared by cheque, enjoying a cash discount of Rs. 1,000 on the payment made.29 Close H’s Account to record the fact that all but Rs. 5,000 was cleared by him, by a cheque, because he was declared bankrupt.30 Balance R’s Account.Solution: Mr H A/c Amount Amount Date Particulars (Rs) Date Particulars (Rs)1-Apr To Balance b/d 20,0005-Apr To Sales A/c 30,00017-Jan To Sales A/c 40,000 22-Apr By Cash A/c 24,775 22-Apr By Discount A/c 225 22-Apr By Bank A/c 20,000 29-Apr By Bank A/c 40,000 29-Apr By Bad Debt A/c 5,000
Mr R A/c Amount AmountDate Particulars (Rs) Date Particulars (Rs) 1-Apr By Balance b/d 15,000 4-Apr By Purchase A/c 54,000 17-Jan By Purchase A/c 25,00018-Apr To Purchase returns A/c 5,400 To Bank A/c 77,600 To Discount A/c 1,000 To Balance c/d 10,000
Assignment III – Trial BalanceQ. 1 Given below is a ledger extract relating to the business of X and Co. as on March 31, 2009.You are required to prepare the Trial Balance. Cash AccountDr. Cr. Particulars Rs. Particulars Rs.To Capital A/c 10,000 By Furniture A/c 3,000To Ram’s A/c 25,000 By Salaries A/c 2,500To Cash Sales 500 By Shyam’s A/c 21,000 By Cash Purchases 1,000 By Capital A/c 500 By Balance c/d 7,500 35,500 35,500 Furniture AccountDr. Cr. Particulars Rs. Particulars Rs.To Cash A/c 3,000 By Balance c/d 3,000 3,000 3,000 Salaries AccountDr. Cr. Particulars Rs. Particulars Rs.To Cash A/c 2,500 By Balance c/d 2,500 2,500 2,500 Shyam’s AccountDr. Cr. Particulars Rs. Particulars Rs.To Cash A/c 21,000 By Purchases A/c 25,000 (Credit Purchases)To Purchase Returns A/c 500To Balance c/d 3,500 - 25,000 25,000
Purchases AccountDr. Cr. Particulars Rs. Particulars Rs.To Cash A/c (Cash Purchases) 1,000 By Balance c/d 26,000To Sundries as per Purchases Book (Credit Purchases) 25,000 - 26,000 26,000 Purchases Returns AccountDr. Cr. Particulars Rs. Particulars Rs.To Balance c/d 500 By Sundries as per Purchases 500 Return Book 500 500 Ram’s AccountDr. Cr. Particulars Rs. Particulars Rs.To Sales A/c (Credit Sales) 30,000 By Sales Returns A/c 100 By Cash A/c 25,000 By Balance c/d 4,900 30,000 30,000 Sales AccountDr. Cr. Particulars Rs. Particulars Rs.To Balance c/d 30,500 By Cash A/c (Cash Sales) 500 By Sundries as per Sales Book (Credit sales) 30,000 30,500 30,500 Sales Returns AccountDr. Cr. Particulars Rs. Particulars Rs.To Sundries as per Sales Return Book 100 By Balance c/d 100
100 100 Capital AccountDr. Cr. Particulars Rs. Particulars Rs.To Cash A/c 500 By Cash A/c 10,000To Balance c/d 9,500 - 10,000 10,000Solution: Trial Balance X and Co. as on March 31, 2009 Debit Amount (Total) Credit Amount (Total) S. No. Ledger Account L.F. No. Rs Rs1. Cash Account 7,5002. Furniture Account 3,0003. Salaries Account 2,5004. Shyams Account 3,5005. Purchases Account 26,0006. Purchase Returns Account 5007. Rams Account 4,9008. Sales Account 30,5009. Sales Returns Account 10010. Capital Account 9,500 44,000 44,000Q.2 From the following ledger balances, prepare a trial balance of Anuradha Traders as onMarch 31, 2009:Account Head Rs.Capital 1,00,000Sales 1,66,000
Purchases 1,50,000Sales return 1,000Discount allowed 2,000Expenses 10,000Debtors 75,000Creditors 25,000Investments 15,000Cash at bank and in hand 37,000Interest received on investments 1,500Insurance paid 2,500Solution: Trial Balance Anuradha Traders as on March 31, 2009 Debit Amount (Total) Credit Amount (Total) S. No. Ledger Account L.F. No. Rs RsCapital 100,000Sales 166,000Purchases 150,000Sales return 1,000Discount allowed 2,000Expenses 10,000Debtors 75,000Creditors 25,000Investments 15,000Cash at bank and in hand 37,000Interest received on investments 1,500Insurance paid 2,500 292,500 292,500
Q.3 One of your clients, X has asked you to finalize his accounts for the year ended March 31,2009. Till date, he himself has recorded the transactions in books of accounts. As a basis foraudit, X furnished you with the following statement. Dr. Balance Cr. BalanceX’s Capital 1,556X’s Drawings 564Leasehold premises 750Sales 2,750Due from customers 530Purchases 1,259Purchases return 264Loan from bank 256Creditors 528Trade expenses 700Cash at bank 226Bills payable 100Salaries and wages 600Stock (1.4.2008) 264Rent and rates 463Sales return 98 5,454 5,454The closing stock on March 31, 2009 was valued at Rs. 574. X claims that he has recorded everytransaction correctly as the trial balance is tallied. Check the accuracy of the above trial balance.
Solution: Trial Balance of X as on March 31, 2009 S. No. Ledger Account L.F. No. Dr. Balance Cr. BalanceX’s Capital 1,556X’s Drawings 564Leasehold premises 750Sales 2,750Due from customers 530Purchases 1259Purchases return 264Loan from bank 256Creditors 528Trade expenses 700Cash at bank 226Bills payable 100Salaries and wages 600Stock (1.4.2008) 264Rent and rates 463Sales return 98 5,454 5,454
Assignment IV – Final AccountsQ.1 From the following information, prepare a Trading Account of M/s. ABC Traders for theyear ended March 31, 2009: Rs.Opening Stock 1,00,000Purchases 6,72,000Carriage Inwards 30,000Wages 50,000Sales 11,00,000Returns inward 1,00,000Returns outward 72,000Closing stock 2,00,000Solution: Trading Account of M/s. ABC Traders for the year ended March 31, 2009 Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Opening Stock 100,000 Sales 1,100,000Purchases 672,000 Less: Return Inwards (100,000)Less: Return Outwards (72,000)Carriage Inwards 30,000Wages 50,000Gross Profit 420,000 Closing Stock 200,000 1,200,000 1,200,000
Q.2 Revenue expenses and gross profit balances of M/s ABC Traders for the year ended onMarch 31, 2009 were as follows:Gross Profit Rs. 4,20,000, Salaries Rs. 1,10,000, Discount (Cr.), Rs. 18,000, Discount (Dr.) Rs.19,000, Bad Debts Rs. 17,000, Depreciation Rs. 65,000, Legal Charges Rs. 25,000, ConsultancyFees Rs. 32,000, Audit Fees Rs. 1,000, Electricity Charges Rs. 17,000, Telephone, Postage andTelegrams Rs. 12,000, Stationery Rs. 27,000, Interest paid on Loans Rs. 70,000.Prepare Profit and Loss Account of M/s ABC Traders for the year ended on March 31, 2009.Solution: P&L Account of M/s ABC Traders for the year ended on March 31, 2009 Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Salaries 110,000 Gross Profit 420,000Discount (Dr) 19,000 Discount (Cr) 18,000Bad Debts 17,000Depreciation 65,000Legal Charges 25,000Consultancy Fees 32,000Audit Fees 1,000Electricity Charges 17,000Telephone, Postage &Telegrams 12,000Stationery 27,000Interest paid on loans 70,000Net Profit 43,000 438,000 438,000
Q.3 Mr. X submits you the following information for the year ended March 31, 2009: Rs.Stock as on April 1, 2008 1,50,000Purchases 4,37,000Manufacturing expenses 85,000Expenses on sale 33,000Expenses on administration 18,000Financial charges 6,000Sales 6,25,000Gross profit is 20% of sales.Compute the net profit of Mr. X for the year ended March 31, 2009. Also prepare Trading &Profit & Loss A/c.Solution: Trading Account of Mr X for the year ended on March 31, 2009 Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Opening Stock 150,000 Sales 625,000Purchases 437,000Manufacturing Expenses 85,000Gross Profit 125,000 Closing Stock 172,000 797,000 797,000 P&L Account of Mr X for the year ended on March 31, 2009 Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Expenses on Sale 33,000 Gross Profit 125,000Expenses onadministration 18,000Financial charges 6,000Net Profit 68,000 125,000 125,000
Q.4 A book keeper has submitted to you the following trial balance of X wherein the total ofdebit and credit balances is not equal:Particulars Debit Balances Credit Balances Rs. Rs.Capital - 7,670Cash in hand - 30Purchases 8,990 -Sales - 11,060Cash at bank 885 -Fixtures & fittings 225 -Freehold premises 1,500 -Lighting and heating 65 -Bills receivable - 825Returns inwards - 30Salaries 1,075 -Creditors - 1,890Debtors 5,700 -Stock (1.1.2008) 3,000 -Printing 225 -Bills payable 1,875 -Rates, taxes and insurance 190 -Discounts received 445 -Discounts allowed - 200 24,175 21,705You are required to:(i) Redraft the Trial Balance correctly.(ii) Prepare a Trading and Profit and Loss Account and a Balance Sheet after taking into account the following adjustments: (a) Stock in hand on 31.12.2008 was valued at Rs. 1,800 (b) Depreciate fixtures and fittings by Rs. 25. (c) Rs. 350 was due and unpaid in respect of salaries. (d) Rates and insurance had been in paid in advance to the extent of Rs. 40.
Solution: Trial Balance of X S. No. Ledger Account L.F. No. Dr. Balance Cr. BalanceCapital 7,670Cash in hand 30Purchases 8,990Sales 11,060Cash at bank 885Fixtures & fittings 225Freehold premises 1,500Lighting and heating 65Bills receivable 825Returns inwards 30Salaries 1,075Creditors 1,890Debtors 5,700Stock (1.1.2008) 3,000Printing 225Bills payable 1,875Rates, taxes and insurance 190Discounts received 445Discounts allowed 200 22,940 22,940 Trading Account of Mr X for the year ended December 31,2008.
Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Stock (1.1.2008.) 3,000 Sales 11,060Purchases 8,990 Less: Return Inwards (30)Gross Profit 840 Stock (31.12.2008.) 1,800 12,830 12,830 P&L Account of Mr X for the year ended December 31,2008. Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Depreciation F&F 25 Gross Profit 840Outstanding Salaries 350 Discount received 445Rates, taxes & Insurance 190Less: Advance (40)Lighting & Heating 65Salaries 1,075Printing 225Discount allowed 200Net Profit (805) 1,285 1,285 Balance Sheet of Mr X as on December 31,2008. Credit Amount Debit Amount Particulars (Rs) Particulars (Rs)Reserves & Capital Fixed AssetsCapital 7,670 Fixtures & Fittings 225Net Profit (805) Less: Depreciation (25)Liabilities Freehold premises 1,500
Creditors 1,890 Current AssetsBills Payable 1,875 Cash in hand 30Outstanding Salaries 350 Cash at bank 885 Bills receivable 825 Debtors 5,700 Stock 1,800 Advance rates & insurance 40 10,980 10,980
Q.5 The following is trial balance extracted from the books of X as on 31 March 2009: Debit Amount Credit Amount Rs. Rs. Capital Account - 1,00,000 Plant and Machinery 78,000 - Furniture 2,000 - Purchases and Sales 60,000 1,27,000 Returns 1,000 750 Opening stock 30,000 - Discount 425 800 Sundry Debtors/Creditors 45,000 25,000 Salaries 7,550 - Manufacturing wages 10,000 - Carriage outwards 1,200 - Provision for doubtful debts - 525 Rent, rates and taxes 10,000 - Advertisements 2,000 - Cash 6,900 - 2,54,075 2,54,075Prepare trading and profit and loss account for the year ended 31 March 2009 and a balancesheet on that date after taking into account the following adjustments: (a) Closing stock was valued at Rs. 34,220. (b) Provision for doubtful debts is to be kept at Rs. 500 (c) Depreciate plant and machinery @ 10% p.a. (d) The proprietor has taken goods worth Rs. 5,000 for personal use and additionally distributed goods worth Rs. 1,000 as samples. (e) Purchase of furniture Rs. 920 has been passed through purchases book.
Solution: Trading Account of Mr X for the year ended March 31, 2009. Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Opening Stock 30,000 Sales 127,000Purchases 60,000 Less: Sales Returns (1,000) Provision for doubtfulLess: Purchase Returns (750) debts 25Less: Furniture (920)Less: Drawings (5,000)Less: Advertisement (1,000)Manufacturing Wages 10,000Gross Profit 67,915 Closing Stock 34,220 160,245 160,245 P&L Account of Mr X for the year ended March 31, 2009. Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Dicount allowed 425 Gross Profit 67,915Salaries 7,550 Discount received 800Carriage Outwards 1,200Deprecitation P&M 7,800Rent, rates & taxes 10,000Distributed goods 1,000Advertisements 2,000Net Profit 38,740 68,715 68,715
Balance Sheet of Mr X as on March 31,2009. Credit Amount Debit Amount Particulars (Rs) Particulars (Rs)Reserves & Capital Fixed AssetsCapital 100,000 Plant & Machinery 78,000Net Profit 38,740 Less: Depreciation (7,800)Less: Drawings (5,000) Furniture 2,000 Add: Provision 920Liabilities Current AssetsCreditors 25,000 Stock 34,220 Debtors 45,000 Less: Provision for doubtful debts (500) Cash 6,900 158,740 158,740
Q.6 From the following trial balance and other information prepare profit and loss account forthe year ended 31 March 2009 and a balance sheet on that date: Debit Credit Rs. Rs. X’s Capital Account - 10,00,000 Withdrawals of goods for personal use 1,000 - Balance at bank 1,76,000 - Motor Vehicle 1,50,000 - Debtors and Creditors 2,94,000 2,30,000 Printing and stationery 6,600 - Gross Profit - 5,71,400 Provision for doubtful debts - 5,000 Bad debts 11,400 - Freehold premises 8,00,000 - Repairs to Premises 47,600 - General Reserve - 2,00,000 Proprietor’s remuneration 20,000 - Stock 2,80,000 - Delivery expenses 99,000 - Administrative expenses 1,31,400 - Rates and taxes 15,000 - Drawings 1,00,000 - Unpaid wages - 1,600 Last Year Profit and Loss Account Balance - 1,24,000 21,32,000 21,32,000Adjustments(i) Depreciation on Motor Vehicles @ 50%(ii) Creditors include a claim for damages of Rs. 30,000 and which was settled by paying Rs. 20,000.(iii) Rates paid in advance Rs. 3,000.(iv) Provision for bad debts is to be reduced to Rs. 3,500.(v) The item of repairs to premises includes Rs. 20,000 for acquisition of capital asset.(vi) Stock of stationery in hand on 31 March 2009 is Rs. 2,200.
Solution: P&L Account for the year ended March 31, 2009. Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Bad Debts 11,400 Gross Profit 571,400 Discount for damagesRepair to premises 47,600 paid 10,000Less: Capital expense (20,000) Provison for bad debts 1,500Proprietors remuneration 20,000Delivery expenses 99,000Administrative expenses 131,400Rates & taxes 15,000Less: Rates paid inadvance (3,000)Depreciation on MotorVehicles 75,000Printing & stationery 6,600Less: adjustments (2,200)Net Profit 202,100 582,900 582,900 Balance Sheet as on March 31, 2009. Credit Amount Debit Amount Particulars (Rs) Particulars (Rs)Capital 1,000,000 Motor Vehicle 150,000Less: Drawings (1,000) Less: Depreciation (75,000)Less: Drawings (100,000) Freehold premises 800,000General Reserve 200,000 Add: Capital asset 20,000P&L balance 124,000 Balance at Bank 176,000Net Profit Less: Damage settlement
202,100 (20,000)Creditors 230,000 Stock of Stationery 2,200Less: damages settlement (30,000) Stock 280,000Unpaid Wages 1,600 Debtors 294,000 Less: Provision for doubtful debts (3,500) Rates paid in advance 3,000 1,626,700 1,626,700
Q.7 The following trial balance has been extracted from the books of Ms. X. Prepare the finalaccounts for the year ended 31 March 2009 and a balance sheet on that date: Debit Credit Rs. Rs.Drawings 35,000 -Buildings 60,000 -Debtors and creditors 50,000 80,000Returns 3,500 2,900Purchases and sales 3,00,000 4,65,000Discount 7,100 5,100Life insurance 3,000 -Cash 30,000 -Stock (opening) 12,000 -Bad debts 5,000 -Reserve for bad debts - 17,000Carriage inwards 6,200Wages 27,700Machinery 8,00,000Furniture 60,000Salaries 35,000Bank commission 2,000Bills receivable/payable 60,000 40,000Trade expenses/Capital 13,500 9,00,000 15,10,000 15,10,000Adjustments:(i) Depreciate building by 5%; furniture and machinery by 10% p.a.(ii) Trade expenses Rs. 2,500 and wages Rs. 3,500 have not been paid as yet.(iii) Allow interest on capital at 5% p.a.(iv) Make provision for doubtful debts at 5%.(v) Machinery includes Rs. 2,00,000 of a machine purchased an 31 December 2008. Wages include Rs. 5,700 spent on the installation of machine.Stock on 31 March 2009 was valued at Rs. 50,000.
Solution: Trading Account of Mr X for the year ended March 31, 2009. Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Opening Stock 12,000 Sales 465,000Purchases 300,000 Less: Sales Returns (3,500)Less: Purchase Returns (2,900) Reserve for bad debt 14,500Trade expenses 13,500Unpaid trade expenses 2,500Wages 27,700Less: Installation charges (5,700)Carriage Inwards 6,200Unpaid wages 3,500Gross Profit 169,200 Closing Stock 50,000 526,000 526,000 P&L Account of Mr X for the year ended March 31, 2009. Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Dicount allowed 7,100 Gross Profit 169,200Salaries 35,000 Discount received 5,100Depreciation building 3,000Depreciation furniture 6,000Depreciation machinery 65,143Bank Commission 2,000Interest on Capital 45,000Bad Debts
5,000Net Profit 6,058 174,300 174,300 Balance Sheet of Mr X as on March 31, 2009. Credit Amount Debit Amount Particulars (Rs) Particulars (Rs)Capital 900,000 Buildings 60,000Less: Drawings (35,000) Less: Depreciation (3,000)Less: Life Insurance (3,000) Machinery 800,000Interest on Capital 45,000 Add: Provision 5,700 Less: Depreciation (65,143)Net Profit 6,058 Furniture 60,000 Less: Depreciation (6,000)Creditors 80,000 Stock 50,000Bills Payable 40,000 Debtors 50,000 Less: Provision for bad debts (2,500)Unpaid Trade expenses 2,500 Bills Receivable 60,000Unpaid wages 3,500 Cash 30,000 1,039,058 1,039,058
Q.8 The following is the Trial Balance of X on 31 March 2009: Debit Credit Rs. Rs.Capital - 8,00,000Drawings 60,000 -Opening Stock 75,000 -Purchases 15,95,000 -Freight on Purchases 25,000 -Wages (11 months upto 28-2-2009) 66,000 -Sales - 23,10,000Salaries 1,40,000 -Postage, Telegrams, Telephones 12,000 -Printing and Stationery 18,000 -Miscellaneous Expenses 30,000 -Creditors - 3,00,000Investments 1,00,000 -Discounts Received - 15,000Debtors 2,50,000 -Bad Debts 15,000 -Provision for Bad Debts - 8,000Building 3,00,000 -Machinery 5,00,000 -Furniture 40,000 -Commission on Sales 45,000 -Interest on Investments - 12,000Insurance (Year up to 31-7-2009) 24,000 -Bank Balance 1,50,000 - 34,45,000 34,45,000Adjustments:(i) Closing Stock Rs. 2,25,000.(ii) Machinery worth Rs. 45,000 purchased on 1-10-08 was shown as Purchases. Freight paid on the Machinery was Rs. 5,000, which is included in Freight on Purchases.(iii)Commission is payable at 2½% on Sales.(iv) Investments were sold at 10% profit, but the entire sales proceeds have been taken as Sales.(v) Write off Bad Debts Rs. 10,000 and create a provision for Doubtful Debts at 5% of Debtors.
(vi) Depreciate Building by 2½% p.a. and Machinery and Furniture at 10% p.a. Prepare Trading and Profit and Loss Account for the year ending 31 March 2009 and a Balance Sheet as on that date.Solution: Trading Account of Mr X for the year ended March 31, 2009. Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Opening Stock 75,000 Sales 2,310,000 Less: Proceeds fromPurchases 1,595,000 investments (110,000)Less: Purchase ofMachinery (45,000)Freight on purchases 25,000Less: Freight on purchaseof machinery (5,000)Wages 66,000Outstanding wages 6,000Gross Profit 708,000 Closing Stock 225,000 2,425,000 2,425,000 P&L Account of Mr X for the year ended March 31, 2009. Debit Amount Credit Amount Particulars (Rs) Particulars (Rs)Depreciation: Building 7,500 Gross Profit 708,000Depreciation: Furniture 4,000 Discount Received 15,000Depreciation: Machinery 52,500 Intereset on investments 12,000 Proceeds fromSalaries 140,000 investments 10,000Postage, telegrams &telephones 12,000Printing & Stationery 18,000Miscellaneous Expenses 30,000Insurance
24,000Less: Prepaid Insurance (8,000)Commission on Sales 45,000Outstanding commissionon Sales 10,000Bad Debts 15,000Add: Write off 10,000Provision for bad debts 4,000Net Profit 381,000 745,000 745,000 Balance Sheet of Mr X as on March 31, 2009. Credit Amount Debit Amount Particulars (Rs) Particulars (Rs)Capital 800,000 Machinery 500,000 Add: Purchase ofLess: Drawings (60,000) machinery 45,000 Add: Freight on purchaseNet Profit 381,000 of machinery 5,000 Less: Depreciation (52,500) Building 300,000 Less: Depreciation (7,500) Furniture 40,000 Less: Depreciation (4,000) Bank Balance 150,000 Stock 225,000 Investments 100,000Outstanding commissionon Sales 10,000 Less: Sale of investments (100,000)
Outstanding wages 6,000 Debtors 250,000 Less: Write off bad debts (10,000) Less: Provision for badCreditors 300,000 debts (12,000) Prepaid Insurance 8,000 1,437,000 1,437,000
Assignment V - Financial Statement AnalysisQ.1 From the following particulars relating to AB Co. prepare a Balance Sheet as on 31.12.2009:Fixed assets / turnover ratio 1:2Debt collection period Two monthsGross profit 25%Consumption of raw materials 40% of costStock of Raw materials 4 months consumptionFinished goods 20% of turnover at costFixed Assets to Current Assets 1:1Current Ratio 2:1Long Term loan to current Liability 1:3Capital to Reserve 5:2Value of Fixed Assets Rs. 10,50,000Solution:Fixed Assets = Rs. 10,50,000Fixed assets / turnover ratio = Fixed assets / Sales =1:2 Sales = Rs 21,00,000Fixed assets / current assets = 1:1 Current assets = Rs 10,50,000Gross Profit = 25% * Sales Gross Profit = Rs 5,25,000Cost of Goods Sold = Sales – Gross Profit Cost of Goods Sold (COGS) = Rs 15,75,000Consumption of raw material = 40% * COGS Consumption of raw material = Rs 6,30,000Stock of raw material = COGS /12 *4 Stock of raw material = Rs 2,10,000Finished goods = 20% * COGS Finished goods = Rs 3,15,000Debt Collection Period = Average debtors * 12 / Net Credit Sales Average Debtors = Net credit Sales/12 * debt collection period Average debtors = Rs 21,00,000 * 2/12 Average debtors = Rs 3,50,000Current ratio = Current Assets / Current Liabilities = 2 :1 Current Liabilities = Rs 5,25,000
Long term loan to current liability = 1: 3 Long term loan = Rs 1,75,000Total Assets = Fixed Assets + Current Assets = Rs 21,00,000 Total Liabilities = Rs 21,00,000 Networth = ESC + R&S = Total Liabilities – Current Liabilities – Long Term Debt Networth = 21,00,000 - 5,25,000 - 1,75,000 Capital + Reserves & Surplus = Rs 14,00,000Capital to Reserves = 5:2 Capital = Rs 10,00,000 Reserves = Rs 4,00,000 Balance Sheet of AB Co. as on 31.12.2009 Particulars Credit Amount (Rs) Particulars Debit Amount (Rs) Shareholders’ Rs 14,00,000 Fixed Assets Rs 10,50,000 Funds Capital Rs 10,00,000 Reserves Rs 4,00,000 Current Assets Rs 10,50,000Current Liabilities Rs 5,25,000 Debtors Rs 3,50,000 Long Term Debt Rs 1,75,000 Stock of raw Rs 2,10, 000 material Finished Goods Rs 3,15,000 Cash (B.f.) Rs 1,75,000 Total Liabilities Rs 21,00,000 Total Assets Rs 21,00,000
Q.2 From the following particulars prepare the Balance Sheet of A Ltd.:Current Ratio 1.50Current Assets/Fixed Assets 1:2Fixed Assets to turnover 1:1Gross Profit 25%Debtors Velocity 2 monthsCreditors Velocity 2 monthsStock Velocity 3 monthsDebt equity ratio 2:5Working Capital Rs. 2,00,000Solution:Working Capital = Current Assets – Current Liabilities = Rs 2,00,000Current Ratio = Current Assets / Current Liabilities=> Current Assets = Rs 6,00,000=> Current Liabilities = Rs 4,00,000Current Assets to Fixed Assets = 1: 2 Fixed Assets = Rs 12,00,000 Total Assets = Total Liabilities = Rs 18,00,000Fixed Assets to Turnover = 1:1 Turnover = Sales = Rs 12,00,000 Gross Profit = 25* Sales = Rs 4,00,000 Cost of Goods Sold (COGS) = Rs 9,00,000Debtors Velocity = 2 months Debtors = 12,00,000 /12 *2 = Rs 2,00,000Creditors Velocity = 2 months Creditors = Rs 9,00,000 /12 * 2 = Rs 1,50,000Stock Velocity = 3 months Stock = Rs 9,00,000 /12 * 3 = Rs 2,25,000Debt to Equity Ratio = 2: 5& Debt + Equity = Total Liabilities – Creditors = 18,00,000 – 4,00,000 = 14,00,000 Debt = Rs 4,00,000 Equity = Rs 10,00,000 Balance Sheet of A Limited Particulars Credit Amount (Rs) Particulars Debit Amount (Rs) Equity Rs 10,00,000 Fixed Assets Rs 12,00,000
Current Liabilities Rs 4,00,000 Long Term Debt Rs 4,00,000 Current Assets Rs 6,00,000 Debtors Rs 1,50,000 Stock Rs 2,25, 000 Cash (B.f.) Rs 2,75,000 Total Liabilities Rs 18,00,000 Total Assets Rs 18,00,000
Q.3 From the following information, you are required to prepare a Balance Sheet:Current Ratio 1.75Liquid Ratio 1.25Stock Turnover ratio (Closing Stock) 9Gross profit ratio 25%Debt collection period 1.50 monthsReserves and surplus to capital 0.20Turnover to fixed assets 1.20Fixed assets to net worth 1.25Sales for the year Rs. 12,00,000Solution:Sales (Turnover) = Rs 12,00,000Turnover to Fixed Assets = 1.2 Fixed Assets = Rs 10,00,000Fixed Assets to Networth = 1.25 Networth = Rs 8,00,000 = Reserves & Surplus + CapitalGross Profit = 25 * Sales = Rs 3,00,000Cost of Goods Sold (COGS) = Sales – Gross Profit Cost of Goods Sold (COGS) = Rs 9,00,000Stock Turnover ratio = 9 Stock = 9,00,000/9 = Rs 1,00,000Debt Collection Period = 1.5 Months Debtors = 12,00,000/12*1.5 = Rs 1,50,000Reserves & Surplus to Capital = 0.2 Capital = Rs 6,66,667 Reserves & Surplus = Rs 1,33,333Current Ratio = Current Assets / Current Liabilities = 1.75Liquid Ratio = (Current Assets – Stock ) / Current Liabilities = 1.25 (1.75 CL – 1,00,000) / CL =1.25 Current Liabilities = Rs 2,00,000 Current Assets = Rs 3,50,000 Total Assets = Fixed Assets + Current Assets = Rs 13,50,000 Long Term Liabilities = Total Liabilities – Current Liabilities – Networth Long Term Liabilities = 13,50,000 – 2,00,000 – 8,00,000 = Rs 3,50,000
Balance Sheet Particulars Credit Amount (Rs) Particulars Debit Amount (Rs) Networth Rs 8,00,000 Fixed Assets Rs 10,00,000 Capital Rs 6,66,667Reserves & Surplus Rs 1,33,333 Current Assets Rs 3,50,000Current Liabilities Debtors Rs 1,50,000 Long Term Debt Rs 2,00,000 Stock Rs 1,00, 000 Rs 3,50,000 Cash (B.f.) Rs 1,00,000 Total Liabilities Rs 13,50,000 Total Assets Rs 13,50,000
Q. 4 Mr. Desai intends to supply goods on credit to A Ltd. and B Ltd. The relevant financial datarelating to the companies for the year ended 30th June, 2009 are as under: A Ltd. B Ltd.Stock 8,00,000 1,00,000Debtors 1,70,000 1,40,000Cash 30,000 60,000Trade Creditors 3,00,000 1,60,000Bank overdraft 40,000 30,000Creditors for expenses 60,000 10,000Total purchases 9,30,000 6,60,000Cash purchases 30,000 20,000 Advice with reasons, as to which of the companies he should prefer to deal withSolution:Financ A Ltd B Ltd ial RatioCredit =(9,30,000-30,000)/3,00,000 =(6,60,000-20,000)/1,60,000Turnov =3 =4erCredit 4 Months 3 MonthsPaymentPeriodCurren =(8,00,000+1,70,000+30,000)/(3,00,000+ =(1,00,000+1,40,000+60,000)/(1,60,000+t Ratio 40,000+60,000) 30,000+10,000) =2.5 =1.5Quick =(1,70,000+30,000)/( 3,00,000+60,000) =(1,40,000+60,000)/(1,60,000+10,000)Ratio =0.56 =1.18Mr Desai should prefer to deal with B Ltd. Reasons are mentioned below: - 1. Quick ratio of 1.18 of B Ltd is better than .56 of A Ltd. 2. Credit Payment Period of 3 months of B Ltd is better than 4 months of A Ltd. 3. Current ratio of 2.5 of A Ltd is better than 1.5 of B Ltd. Since stock can not be converted into cash quickly, quick ratio and credit payment period of B Ltd are more important in view of requirement of Mr Desai. Therefore, he must choose B Ltd for dealing.
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 80,000Purchases 4,20,000 Credit Sales 3,20,000G.P. 60,000 Stock 2,10,000Depreciation 13,100 G.P. 60,000G. Expenses 20,900Director’s Fees 10,000N.P. 16,000 60,000 60,000 Balance Sheet as at 31st December, 2008Share Capital 3,60,000 Fixed Assets 2,05,600Profit & Loss A/c 24,600 Stock 2,10,000Creditors 1,40,000 Debtors 1,60,000Bank overdraft 51,000 5,75,000 5,75,0001. 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.7. General expenses and depreciation are to remain the same. Draft budgeted Trading and Profit and loss account and balance sheet, assuming that theobjectives had been achieved.Solution:Financial figure/ ratio Existing figure / ratio (2008) Desired figure / ratio (2009)Stock turnover =3,40,000*2/(2,10,000+1,30,000) 4 =2Stock 2,10,000 1,50,000Cash Sales / Credit Sales 1:4 1:2
Director’s Remuneration 10,000 25,000Gross Profit to Sales 15% 20%Trade Creditors to Closing Stock =1,40,000/2,10,000 66.67% =66.67%Debtors to Credit Sales 1:2 1:2General Expenses 20,900 20,900Depreciation 13,100 13,100Solution:Since Stock in 2009 = Rs 1,50,000 Cost of goods sold = Rs (2,10,000+1,50,000)/2 * 4 = Rs 7,20,000Let Sales be x=> 20%x = x – 7,20,000=> Sales = Rs 9,00,000=> GP = Rs 1,80,000=> Cash Sales = Rs 3,00,000=> Credit Sales = Rs 6,00,000=> Debtors = Rs 3,00,000Trade Creditors = 1,50,000 *66.67% = Rs 1,00,0007,20,000 = 2,10,000 + Purchases – 1,50,000=> Purchases = Rs 6,60,000Drafted Trading & Profit and Loss Account and Balance Sheet: - Trading & P&L Account (31.12.2009)Opening Stock 2,10,000 Cash Sales 3,00,000Purchases 6,60,000 Credit Sales 6,00,000G.P. 1,80,000 Stock 1,50,000Depreciation 13,100 G.P. 1,80,000G. Expenses 20,900Director’s Fees 25,000N.P. 1,21,000 1,80,000 1,80,000 Balance Sheet as at 31st December, 2009Share Capital 3,60,000 Fixed Assets 2,05,600Profit & Loss A/c 24,600 Stock 1,50,000
Net Profit 1,21,000 Debtors 3,00,000Bank overdraft 36,900 Less : Depreciation -13,100Creditors 1,00,000 6,42,500 6,42,500
Q.6 You are given the following figures worked out from the profit and loss account and balancesheet of Z Ltd. relating to the year 2008. Prepare the balance sheet.Fixed Assets (net after writing off 30%) Rs. 10,50,000Fixed Assets Turnover ratio 2Finished goods turnover ratio 6Rate of gross profit to sales 25%Net profit (before interest) to sale 8%Fixed charges cover (debenture interest 7%) 8Debt collection period 1½ monthsMaterial consumed to sales 30%Stock of raw materials (in terms of number of month’s consumption) 8Current ratio 2.4Quick ratio 1.0Reserves to capital 0.20Solution:Fixed Assets = Rs 10,50,000Sales (Turnover) = Rs 21,00,000Gross Profit = Rs 5,25,000Cost of Goods Sold (COGS) = Rs 15,75,000Finished Goods = Rs 2,62,500Net Profit before interest = Rs 1,68,000Annual Interest Payments = Rs 21,000Net Profit after interest = Rs 1,47,000Debentures (7%) = Rs 3,00,000Debtors = Rs 2,62,500Material Consumed = Rs 6,30,000Stock of Raw Material = Rs 4,20,000Current Ratio – Quick Ratio = Stock / Current Liabilities = 1.4Stock = 2,62,500 + 4,20,000 = 6,82,500 Current Liabilities = Rs 4,87,500 Current Assets = Rs 11,70,000Capital + Reserves & Surplus = 22,20,000– 4,87,500 -3,00,000 = Rs 14,32,500 Capital = Rs 11,93,750 Reserves & Surplus = Rs 2,38,750
Balance Sheet of Z Ltd as at 31st December, 2008Capital 11,93,750 Fixed Assets 10,50,000Reserves & Surplus Current Assets 11,70,000Profit & Loss A/c b/d 91,750Net Profit after interest 1,47,000 Debtors 2,62,5007% Debentures 3,00,000 Stock of Raw Materials 4,20,000 Finished Goods 2,62,500Current Liabilities 4,87,500 Cash (B. f.) 2,25,000 22,20,000 22,20,000Net Profit is part of Reserves & Surplus.
Q.7 The summarized Balance Sheet of X Ltd. as at 31st December 2008 and its summarizedProfit and Loss Account for the year ended on that date, are as follows. The correspondingfigures of the previous year are also shown: Balance SheetLiabilities 2008 2007 Assets 2008 2007 (Rs. in lakhs ) (Rs. in lakhs)Share capital Fixed Assets –60,000 shares of At cost lessRs. 100 each 60.00 60.00 Depreciation:Reserve & Surplus Property 21.00 18.00 29.25 24.00 Plant 61.50 48.008% Debenture 15.00 15.00 82.50 66.00Current Liabilities Current Assets -& Provisions :Sundry Creditors 45.75 24.00 Stock of finished 42.75 31.50 goodsProvision for 13.50 10.50 Sundry Debtors 41.25 30.00TaxationProposed Bank 1.50 9.00Dividend 4.50 3.00 63.75 85.50Total : 168.00 136.50 168.00 136.50 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) 225.00 180.00Gross Profit C/d 63.00 45.00 225.00 180.00 225.00 180.00Overhead Expenses 43.50 30.00 Gross Profit b/d 63.00 45.00Net Profit before taxation 19.50 15.00 63.00 45.00 63.00 45.00Provision for taxation 8.25 6.30 Net profit b/d 19.50 15.00Dividend-paid andProposed 6.00 4.50
Surplus for the yearcarried to Balance Sheet 5.25 4.20 19.50 15.00 19.50 15.00You are required to interpret the above statement using significant accounting ratios.Solution:Following are the five steps in examining the performance of the company in the year 2008 ascompared to the year 2007.Step 1: Calculation of the ratios Financial Ratio 2008 2007Return on Capital =(19.5+1.2)/(60+29.25+15) =(15+1.2)/(60+24+15)Employed (RoCE) =19.86 % =16.36%Net Profit Ratio (NPR) =19.5/225*100% =15/180*100% =8.67% =8.34%Capital Employed Turnover =225/(60+29.25+15) =180/(60+24+15)Ratio (CETR) =2.16 =1.82Current Ratio (CR) =85.5/63.75 =70.5/37.5 =1.34 =1.88Stock Turnover Ratio (STR) =162/42.75 =135/31.5 =3.79 =4.29Average Collection Period =41.25/225*365 =30/180*365(ACP) =66.91 Days= ~67 days =60.83 Days = ~61 daysDebt / Equity Ratio (D/E) =15/89.25 =15/84 =.17 =.18Earning per share (EPS) =11,25,000/60,000 =8,70,000/60,000 =18.75 =14.5Dividend payout ratio (DPS =(6,00,000/60,000)/18.75*100% =(4,50,000/60,000)/14.5*100%/ EPS) =53.33% =51.72%Gross Profit Ratio (GPR) =63/225*100% =45/180*100% =28% =25%2. Comment on Individual Ratios: - 1. Return on Capital Employed (RoCE) has increased from 16.36% in 2007 to 19.86% in 2008. This is achieved with the help of increased profitability on sales and more efficient utilization of capital employed.
2. Net Profit Ratio (NPR) has increased from 8.34% in 2007 to 8.67% in 2008. This is achieved with the help of increased profitability on sales. 3. Capital employed turnover ratio (CETR) has increased from 1.82 in 2007 to 2.16 in 2008. This is increased with the help of more efficient use of capital employed. 4. Current ratio (CR) has decrease to 1.34 in 2008 from 1.88 in 2007. This indicates that Working Capital Management (WC Mgt) of the company is not showing healthy signs. The reason for decline in CR is financing fixed assets out of working capital (WC). During the year, there is substantial increase in fixed assets without any efforts to raise long term funds. Long term funds have increased by 5.25 lacs on account of retained profits. 5. Stock Turnover ratio (STR) has decreased from 4.29 in 2007 to 3.79 in 2008. This indicates that Stock is not being efficiently utilized. 6. Average Collection Period (ACP) has increased to 67 days in 2008 from 61 days in 2007. This indicates poor collection as compared to previous year. 7. There is no noticeable change in debt/equity ratio. The debt/equity ratio (.18) of the company is low which indicates presence of less long term debt as compared to equity capital. 8. Earning per share (EPS) has increased to 18.75 in 2008 from 14.5 in 2007 (growth of 29.31% over previous year) indicates healthy growth of EPS. 9. Dividend payout ratio (DPR) has increased to 53.33% in 2008 from 51.72% in 2007 which is not a healthy sign in view of difficult working capital situation of the company. Dividend per share (DPS) has increased to 10 in 2008 from 7.5 in 2007. 10. Gross profit ratio (GPR) has increase to 28% in 2008 from 25% in 2007 which indicates 12% y/y growth in gross profit ratio.Step 3: Critical AppraisalThe profitability of the company increased in account of increase in sales. Overheads haveincreased considerably.Working capital management is not satisfactory. Dividend payout should not have been so highin view of working capital problems.Step 4: Overall PerformanceOverall performance of the company is satisfactory (RoCE has improved)Step 5: Suggestion for the future 1. Try to improve working capital situation. 2. Try to control the overheads. 3. Funds may be raised through debentures, long term loans etc as the company’s debt/equity ratio is low. Such funds may be used to improve working capital situation and also for expansion and diversification of the business.
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 2007Equity shares of Rs. 100 each 2 2 Fixed Assets (Less Dep.) 4.16 3.96Reserves .20 .40 Stock .60 1.20Profit & Loss A/c .28 .04 Debtors .80 1.60Loans on Mortgage 2.20 1.60 Cash and Bank Balances .60 .04Bank overdraft .40Creditors .60 1.80Provision for Taxation .68 .26Proposed 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 2007Interest on Loan .048 .096 Balance B/F - .28Directors’ Profit for the year afterRemuneration running costs & .20 .60 Depreciation 1.608 1.216Provision for Taxation .68 .26Dividends .20 .30Transfer to Reserve .20 .20Balance 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.
Solution:Step 1: Calculation of Financial RatiosS. No. Financial ratio 2008 20071 Return on Capital Employed =(1.608- =(1.216-.3)/(2+.4+.04+1.6) (RoCE) .2)/(2+.2+.28+2.2) =22.67% =30.09%2 Net Profit Ratio (NPR) =.68/10*100% =.54/12*100% =6.8% =4.5%3 Capital Employed Turnover =10/(2+.2+.28+2.2) =12/(2+.4+.04+1.6) Ratio (CETR) =2.14 =2.974 Current Ratio (CR) =(.6+.8+.6)/(.6+.68+.2) =(1.2+1.6+.04)/(1.8+.26+.3) =1.35 =1.205 Stock Turnover Ratio (STR) =(10-1.608)/.6 =(12-1.216)/1.2 =13.99 =8.996 Average Collection Period =.8/10*365 =1.6/12*365 (ACP) =29.2 Days =48.67 Days7 Debt / Equity Ratio (D/E) =2.20/2.48 =1.6/2.44 =.89 =.668 Earning per share (EPS) =68,000/2000 =54,000/2000 =34 =279 Dividend payout ratio (DPS / =.2/.68 =.3/.54 EPS) =29.41% =55.56%10 Gross Profit Ratio (GPR) =.1.608/10*100% =1.216/12*100% =16.08% =10.13%Step 2: Comments on individual ratios 1. Sales have decreased to 10 lacs in 2008 from 12 lacs in 2007. This is not a positive signal since topline has decreased by 16.67% y/y. 2. Return of Capital Employed (RoCE) has increased by 32.73% to 30.09% in 2008 from 22.67% in 2007. This is attributed to higher return on sales and but less efficient utilization of capital employed. 3. Net Profit Ratio (NPR) has increased to 6.8% in 2008 from 4.5% in 2007. This is a healthy signal since profitability on sales has increased 51.11% y/y basis. 4. Capital Employed Turnover Ratio (CETR) has decreased to 2.14 in 2008 from 2.97 in 2007. This is not a healthy signal since CETR has decreased by 28%.
5. Current Ratio has increased by 12.5% to 1.35 in 2008 from 1.20 in 2007.. This indicates that current assets have increased more w.r.t. current liabilities and is a healthy signal. 6. Stock Turnover Ratio (STR) has increased to 13.99 in 2008 from 7.08 in 2007 which is a healthy signal since stock activity has improved compared to cost of goods sold. 7. Average Collection Period (ACP) has decreased to 29.2 days from 48.67 days which indicates that collection of credit sales has improved as compared to previous year and cash is collected faster. 8. Debt / Equity Ratio has increased to .88 in 2008 from .66 in 2007 which indicates that company has raised long term debt (Mortgage debt) to finance its activities in the year 2008. 9. Earning per share (EPS) has increased to 34 in 2008 from 27 in 2007 which is a healthy sign since EPS growth is a strong signal for investors and creditors for the business. 10. Dividend payout ratio (DPR) has decreased to 29.41% in 2008 from 55.56% in 2007 which indicates that company prefers to retain its profits for future expansions. 11. Gross Profit Ratio (GPR) has increased to 16.08% in 2008 from 10.13% in 2007 which is 58.74% increase on y/y basis. This indicates that overall profitability of the business has significantly improved.Step 3: Critical AppraisalIt is noticed that sales have decreased but all other performance indicators for the company havesignificantly improved over previous year. 32.73% increase in RoCE is surely a very goodperformance indicator of increased profitability. CETR decreased indicates less efficientutilization of resources. Improved current ratio, lower collection period and higher stock turnoverratio indicated enhanced activity in many aspects of the business. It seems that the firm is poisedfor rapid growth path.Step 4: Overall PerformanceThe overall performance of the company is good. Since all major indicators are better but salesand CETR have decreased over previous year.Step 5: Suggestions for the futureThe company should improve the utilization of resources. It is required to improve turnover toincrease topline growth.