Financial Accounting & Analysis
1. The following trial balance has been extracted from the books of XYZ Ltd as on 31st March 2017.
Particulars Debit (Rs.) Credit (Rs.)
Share Capital 1000000
Plant and Machinery 1600000
Sales 3540000
Purchases 1200000
Returns 20000 15000
Opening Stock 600000
Discount 7000 16000
Bank Charges 1500
Sundry Debtors 900000
Sundry Creditors 500000
Salaries 136000
9% Debentures 400000
Manufacturing Wages 200000
Carriage Inwards 15000
Carriage Outwards 24000
Debenture Interest 18000
Bad Debts Provision 10500
Rent, Rates and Taxes 200000
Advertisement 40000
Cash in hand 18000
Cash at bank 120000
10% Investment 300000
Goodwill 300000
Interest on Investment 30000
Factory Expenses 12000
General Reserve 100000
Last year profit 250000
Furniture 150000
5861500 5861500
The following additional information is available:
Depreciation on Furniture, Plant and Machinery to be provided at 10% per annum
Write off Rs. 10000 as bad debts and make a provision for doubtful debts at 5% on sundry debtors
Closing stock was Rs. 700000
a. Mention the formula to calculate gross profit and net profit
b. Prepare the profit and loss account for the year ended 31st march 2017 and Balance sheet as on that date.
c. Comment on the position of financial statements as on date prepared by you. (10 Marks)
2. A company acquired the following assets three years ago:
Asset Cost (Rs.) Scrap Value (Rs.) Useful Life (Years) Depreciation Policy
Equipment 5000000 500000 5 Straight Line Method
Building 8000000 1000000 30 Straight Line Method
After using the assets for three years, the company decided to change its Depreciation policy as follows:
The useful life of the equipment was revised upwards to 8 years, keeping its residual value at Rs. 500000.
The useful life of the building was revised upwards to 40 years, keeping its residual value at Rs. 1000000.
These changes have been implemented from the fourth year onwards.
a. You are required to analyze the impact of such changes in depreciation policy on the financial statements of firms, and write a detailed note on the same..
b. How do you think future profits of this company will be impacted because of these changes?
c. Are any disclosures regarding these required to be made? (10 Marks)
3. Both A Ltd. and B Ltd. operate wholesale electronic stores throughout India. The financial statements of each business for the year ended as on 31st March, 2017 are as follows:
Balance Sheet as on 31st march, 2017 (Rs. in millions)
A Ltd. B Ltd.
Assets
Non-current assets
Property, plant and equipment (Cost less depreciation)
Land and buildings 360.0 510.0
Furniture 87.0 91.2
Current assets
Inventories 592.0 403.0
Trade Receivables 176.4 321.9
Cash at Bank 84.6 91.6
Total assets 1,300.0 1,417.7
Equity and Liabilities
Share Capital of Rs.10 320.0 250.0
Retained Earnings 367.6 624.6
Non-current liabilities
Long term, borrowings 190.0 250.0
Current liabilities
Trade Payables 406.4 275.7
Provision for Taxation 16.0 17.4
Total equity and liabilities 1,300.0 1,417.7
Statement of Profit and Loss for the year ended as on 31st march, 2017 (Rs. in millions)
A Ltd. B Ltd.
Revenue 1,478.1 1,790.4
Cost of Sales (1,018.3) (1,214.9)
Gross Profit 459.8 575.5
Operating expenses (308.5) (408.6)
Operating profit 151.3 166.9
Interest (19.4) (27.5)
Profit before tax 131.9 139.4
Taxation (32.0) (34.8)
Profit for the year 99.9 104.6
All purchases and sales were made on credit. A Ltd. and B Ltd. have declared a dividend of Rs. 135 million and Rs. 95 million in respect of the year. The market prices of a share of A Ltd. and B Ltd. are Rs. 6.50 and Rs. 8.20 respectively.
a. Both the companies have approached a particular bank for seeking long term loans. Critically evaluate which of the two companies will get the loan at better terms and conditions. (5 Marks)
b. As a potential investor looking for good investment opportunities in this sector, which of the two companies do you find more attractive?
1. The following trial balance has been extracted from the books of XYZ Ltd as on 31st March 2017.
Particulars Debit (Rs.) Credit (Rs.)
Share Capital 1000000
Plant and Machinery 1600000
Sales 3540000
Purchases 1200000
Returns 20000 15000
Opening Stock 600000
Discount 7000 16000
Bank Charges 1500
Sundry Debtors 900000
Sundry Creditors 500000
Salaries 136000
9% Debentures 400000
Manufacturing Wages 200000
Carriage Inwards 15000
Carriage Outwards 24000
Debenture Interest 18000
Bad Debts Provision 10500
Rent, Rates and Taxes 200000
Advertisement 40000
Cash in hand 18000
Cash at bank 120000
10% Investment 300000
Goodwill 300000
Interest on Investment 30000
Factory Expenses 12000
General Reserve 100000
Last year profit 250000
Furniture 150000
5861500 5861500
The following additional information is available:
Depreciation on Furniture, Plant and Machinery to be provided at 10% per annum
Write off Rs. 10000 as bad debts and make a provision for doubtful debts at 5% on sundry debtors
Closing stock was Rs. 700000
a. Mention the formula to calculate gross profit and net profit
b. Prepare the profit and loss account for the year ended 31st march 2017 and Balance sheet as on that date.
c. Comment on the position of financial statements as on date prepared by you. (10 Marks)
2. A company acquired the following assets three years ago:
Asset Cost (Rs.) Scrap Value (Rs.) Useful Life (Years) Depreciation Policy
Equipment 5000000 500000 5 Straight Line Method
Building 8000000 1000000 30 Straight Line Method
After using the assets for three years, the company decided to change its Depreciation policy as follows:
The useful life of the equipment was revised upwards to 8 years, keeping its residual value at Rs. 500000.
The useful life of the building was revised upwards to 40 years, keeping its residual value at Rs. 1000000.
These changes have been implemented from the fourth year onwards.
a. You are required to analyze the impact of such changes in depreciation policy on the financial statements of firms, and write a detailed note on the same..
b. How do you think future profits of this company will be impacted because of these changes?
c. Are any disclosures regarding these required to be made? (10 Marks)
3. Both A Ltd. and B Ltd. operate wholesale electronic stores throughout India. The financial statements of each business for the year ended as on 31st March, 2017 are as follows:
Balance Sheet as on 31st march, 2017 (Rs. in millions)
A Ltd. B Ltd.
Assets
Non-current assets
Property, plant and equipment (Cost less depreciation)
Land and buildings 360.0 510.0
Furniture 87.0 91.2
Current assets
Inventories 592.0 403.0
Trade Receivables 176.4 321.9
Cash at Bank 84.6 91.6
Total assets 1,300.0 1,417.7
Equity and Liabilities
Share Capital of Rs.10 320.0 250.0
Retained Earnings 367.6 624.6
Non-current liabilities
Long term, borrowings 190.0 250.0
Current liabilities
Trade Payables 406.4 275.7
Provision for Taxation 16.0 17.4
Total equity and liabilities 1,300.0 1,417.7
Statement of Profit and Loss for the year ended as on 31st march, 2017 (Rs. in millions)
A Ltd. B Ltd.
Revenue 1,478.1 1,790.4
Cost of Sales (1,018.3) (1,214.9)
Gross Profit 459.8 575.5
Operating expenses (308.5) (408.6)
Operating profit 151.3 166.9
Interest (19.4) (27.5)
Profit before tax 131.9 139.4
Taxation (32.0) (34.8)
Profit for the year 99.9 104.6
All purchases and sales were made on credit. A Ltd. and B Ltd. have declared a dividend of Rs. 135 million and Rs. 95 million in respect of the year. The market prices of a share of A Ltd. and B Ltd. are Rs. 6.50 and Rs. 8.20 respectively.
a. Both the companies have approached a particular bank for seeking long term loans. Critically evaluate which of the two companies will get the loan at better terms and conditions. (5 Marks)
b. As a potential investor looking for good investment opportunities in this sector, which of the two companies do you find more attractive?
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