Chapter 9: Analysis of Financial Statements
Select the most appropriate alternative from the given below and rewrite the sentence
Gross Profit Ratio indicates the relationship of gross profit to the___________.
Current Ratio =
Liquid Assets =____________
Cost of goods sold___________
Net-Profit Ratio is equal to______________
The Common Size Statement requires______________
Bill Payable is_________________
Generally Current Ratio should be___________
From financial statement analysis the creditors are specially interested to know_________________
Give one word/term/phrase for the following statement.
The statement showing profitability of two different periods
Comparative Income Statement.
The ratio measures the relationship between Gross Profit and Net Sales.
Gross Profit Ratio
Critical evaluation of financial statements to measure profitability.
Analysis of Financial Statement
A particular mathematical number showing relationship between two accounting figures.
Ratio
An asset which can be converted into cash immediately
Liquid Asset
The ratio measuring the relationship between net profit and ownership capital employed.
ROCE
The statement showing financial position for different periods of previous year and current year.
Comparative Balance Sheet
Statement showing changes in cash and cash equivalent during a particular period.
Cash Flow Statement
Activity related to acquisition of long term assets and investment.
Financing Activities
Investing Activities
The ratio that establishes relationship between Quick Assets and Current Liabilities
Liquid Ratio
State true or false with reason.
Financial Statement includes only Balance Sheets.
This statement is False.
Financial statements include Balance Sheet and Profit and Loss A/c. This is because financial statements are prepared by business organisations to find out efficiency, solvency, profitability, growth, strength and status of the business. For this they need information from the balance sheet as well as from Profit and Loss A/c.
Analysis of financial statements is a tool but not a remedy.
This statement is True.
Based on analysis of financial statement one can get idea of financial strength and weakness of the business. However, based on this one cannot take decision about the business on various issues. Hence analysis of financial statement is a tool but not a remedy.
Purchase of Fixed Assets is operating cash flow.
This statement is False.
Purchase of fixed assets is cash flow from investing activities. It is not a day to day operations activities like office/selling/distribution finance expenses/activities.
Dividend paid is not a source of fund
This statement is True.
Dividend is always paid on shares issued by a company is an expense. Shares itself is a source of fund. In payment of dividend cash goes out from the company. It is an out flow of cash and not a source of fund.
Gross Profit depends upon Net Sales.
This statement is True.
Gross profit ratio discloses the relation between gross profit and total net sales. Gross profit ratio is an income-based ratio, where gross profit is an income. There is direct relation between net sales and gross profit. Higher the net sales higher the gross profit.
Payment of cash against purchase of stock is use of fund.
This statement is True.
Cash payment for purchase of stock is made from cash balance or/and from bank balance which is a part of business fund. When stock or materials we purchase we use cash for payment.
Ratio Analysis is useful for inter-firm comparison
This statement is True.
The comparision of the operating performance of a business entity with the other business entities is known as inter-firm comparision. This ratio analysis assist to know how and to what extent a business entity is strong or weak as compared to other business entity
The short term deposits are considered as cash equivalent.
This statement is True.
The short-term deposits are liquid assets. It means deposits kept for some period (usually less than one year) and they are kept with an intention to get money quickly as and when required. They are as good as cash and considered as cash equivalent
Activity Ratios Turnover Ratios are the same.
This statement is True.
Turnover ratio is an efficiency ratio to check how efficiently company is using different assets to extract earnings from them. Activity ratio are financial analysis tools used to measure a business ability to convert its assets into cash. From both these definitions we can say that Activity ratios and Turnover ratios are same.
Current Ratio measures the liquidity of the business.
This statement is True.
Current ratio shows relation between current assets and current liabilities. If the proportion of current assets is higher than current liabilities, liquidity position of business entity is considered good. More liquidity means more short-term solvency. From the above it is proved that current ratio measures the liquidity of the business.
Ratio analysis measures profitability efficiency and financial soundness of the business.
This statement is True.
With the help of profitability ratios (Gross profit, Net profit and Operating profit) one can get the idea of profitability efficiency of the firm and with the help of liquidity ratios (Current ratio and liquid ratio) one can get the idea of solvency or financial soundness of the business.
Usually the current ratio should be 3:1.
This statement is False.
Usually the current ratio should be 2:1. It means current assets are double of current liabilities. It shows the short-term solvency of business enterprises.
Answer in one sentence only.
Mention two objectives of comparative statement?
Objectives of comparative statements are :
(i) Compare financial data at two points of time and
(ii) Helps in deriving the meaning and conclusions regarding the changes in financial positions and operating results.
State three examples of cash inflows?
Examples of cash inflows are :
(1) Interest received,
(2) Dividend received,
(3) Sale of asset/investment,
(4) Rent received.
State three examples of cash outflows?
Examples of cash outflows are :
(1) Interest paid,
(2) Loss on sale of asset,
(3) Dividend paid,
(4) Repayment of short-term borrowings.
Give the formula of Gross Profit Ratio?
Gross profit ratio = (Gross profit / Net sales) x 100
Where Gross profit = Net sales – Cost of goods sold
Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock
Net sales = Sales – Sales return.
Give the formula of gross profit?
Gross profit = Net sales – Cost of goods sold.
Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock
Net sales = Sales – Sales return.
Give any three examples of current assets?
Cash or cash equivalent short-term lending and advances, expenses paid in advance, taxes paid in advance, etc. are the examples of current assets.
Give the formula of current ratio?
Current ratio = Current assets / Current liabilities
Give the formula of quick assets?
Quick assets = Current assets – (Stock + Prepaid expense)
State the formula of Cost of goods sold?
Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock
State the formula of Average Stock?
Average stock = (Opening stock of goods + Closing stock of goods) / 2
Practical Problems.
Accounts Chapter 9: Analysis of Financial Statements.
Practical problem | Q 1 | Page 376
From the Balance Sheet of Amar Traders as on 31st March 2018 and 31st, March 2019 prepare comparative Balance Sheet.
| Liabilities | 31.3.2018 (₹) | 31.3.2019 (₹) | Assets | 31.3.2018 (₹) | 31.3.2019 (₹) |
|---|---|---|---|---|---|
| Capital | 60,000 | 72,000 | Fixed Assets | 1,20,000 | 1,50,000 |
| Reserves and Surplus | 24,000 | 30,000 | Current Assets | 28,000 | 27,000 |
| Loans | 34,000 | 51,000 | |||
| Creditors | 30,000 | 24,000 | |||
| Total | 1,48,000 | 1,77,000 | Total | 1,48,000 | 1,77,000 |
Solution:
Comparative Balance Sheet of Amar Traders as on 31st March 2018 and 31st March 2019
| Particulars | 31–03–2018 (₹) | 31–03–2019 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| I. Sources of Funds | ||||
| (a) Capital | 60,000 | 72,000 | 12,000 | 20 % Increase |
| (b) Reserve and Surplus | 24,000 | 30,000 | 6,000 | 25 % Increase |
| (A) Net Worth | 84,000 | 1,02,000 | 18,000 | 21.43 % Increase |
| Borrowed Funds | ||||
| (a) Loans | 34,000 | 51,000 | 17,000 | 50 % Increase |
| (B) Total Borrowed Funds | 34,000 | 51,000 | 17,000 | 50 % Increase |
| Total Funds Available (A + B) | 1,18,000 | 1,53,000 | 35,000 | 29.66 % Increase |
| Particulars | 31–03–2018 (₹) | 31–03–2019 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| II. Application of Funds | ||||
| A. Fixed Assets | 1,20,000 | 1,50,000 | 30,000 | 25 % Increase |
| B. Working Capital | ||||
| (1) Current Assets | 28,000 | 27,000 | (1,000) | (3.57 %) Decrease |
| Less : (2) Current Liabilities: Creditors | 30,000 | 24,000 | (6,000) | (20 %) Decrease |
| Working Capital (Current Assets – Current Liabilities) | (2,000) | 3,000 | 5,000 | (250 %) Increase |
| Total Funds Applied (A + B) | 1,18,000 | 1,53,000 | 35,000 | 29.66 % Increase |
Percentage change = (Amount of Absolute Change ÷ Amount of Previous Year) × 100
Practical problem | Q 2 | Page 376
From the following Balance Sheet of Alpha Limited prepare a comparative Balance Sheet as on 31st March 2018 and 31st March 2019.
| Balance Sheet As on 31st March 2018 and 31st March 2019 | |||||
|---|---|---|---|---|---|
| Liabilities | 31.3.2018 (₹) | 31.3.2019 (₹) | Assets | 31.3.2018 (₹) | 31.3.2019 (₹) |
| Equity Share Capital | 2,00,000 | 2,50,000 | Land | 80,000 | 1,00,000 |
| 12% Preference Shares | 80,000 | 80,000 | Building | 60,000 | 90,000 |
| Reserves and Surplus | 1,00,000 | 1,40,000 | Plant and Machinery | 73,000 | 1,73,000 |
| 15% Debentures | 60,000 | 51,000 | Stock | 1,50,000 | 1,10,000 |
| Creditors | 50,000 | 80,000 | Debtors | 1,28,000 | 1,40,000 |
| Bills Payable | 10,000 | 6,000 | Bank | 34,000 | 37,000 |
| Provision for Taxation | 25,000 | 43,000 | |||
| Total | 5,25,000 | 6,50,000 | Total | 5,25,000 | 6,50,000 |
Solution:
Comparative Balance Sheet of Alpha Limited as on 31st March, 2018 and 31st March, 2019
| Particulars | 31–03–2018 (₹) | 31–03–2019 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| I. Sources of Funds | ||||
| (a) Equity Share Capital | 2,00,000 | 2,50,000 | 50,000 | 25 % Increase |
| (b) 12 % Preference Shares | 80,000 | 80,000 | – | – |
| (c) Reserve and Surplus | 1,00,000 | 1,40,000 | 40,000 | 40 % Increase |
| (A) Net Worth | 3,80,000 | 4,70,000 | 90,000 | 23.68 % Increase |
| Borrowed Funds | ||||
| Secured Loan – 15 % Debentures | 60,000 | 51,000 | (9,000) | (15 %) Decrease |
| (B) Total Borrowed Funds | 60,000 | 51,000 | (9,000) | (15 %) Decrease |
| Total Funds Available (A + B) | 4,40,000 | 5,21,000 | 81,000 | 18.41 % Increase |
II. Application of Funds
| Particulars | 31–03–2018 (₹) | 31–03–2019 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| A. Fixed Assets – Land | 80,000 | 1,00,000 | 20,000 | 25 % Increase |
| Building | 60,000 | 90,000 | 30,000 | 50 % Increase |
| Plant and Machinery | 73,000 | 1,73,000 | 1,00,000 | 137 % Increase |
| Total Fixed Assets | 2,13,000 | 3,63,000 | 1,50,000 | 70.42 % Increase |
| B. Working Capital | ||||
| Current Assets – Stock | 1,50,000 | 1,10,000 | (40,000) | (26.67) % Decrease |
| Debtors | 1,28,000 | 1,40,000 | 12,000 | 9.375 % Increase |
| Bank | 34,000 | 37,000 | 3,000 | 8.82 % Increase |
| Total Current Assets | 3,12,000 | 2,87,000 | (25,000) | (8.01 %) Decrease |
| Less : Current Liabilities | ||||
| Creditors | 50,000 | 80,000 | 30,000 | 60 % Increase |
| Bills Payable | 10,000 | 6,000 | (4,000) | (40 %) Decrease |
| Provision for Taxation | 25,000 | 43,000 | 18,000 | 72 % Increase |
| Total Current Liabilities | 85,000 | 1,29,000 | 44,000 | 51.76 % Increase |
| Working Capital (Current Assets – Current Liabilities) | 2,27,000 | 1,58,000 | (69,000) | (30.40 %) Decrease |
| Total Funds Applied (A + B) | 4,40,000 | 5,21,000 | 81,000 | 18.41 % Increase |
Practical problem | Q 3 | Page 377
Prepare Comparative Balance Sheet for the year ended 31.3.18 and 31.3.19 Assets & Liabilities as follows:
| Particulars | 31.3.18 (₹) | 31.3.19 (₹) |
|---|---|---|
| 1) Fixed Assets | 1,20,000 | 1,50,000 |
| 2) Share Capital | 60,000 | 72,000 |
| 3) Current Assets | 28,000 | 27,000 |
| 4) Reserve & Surplus | 24,000 | 30,000 |
| 5) Loan | 34,000 | 57,000 |
| 6) Current liabilities | 30,000 | 24,000 |
Solution:
Comparative Balance Sheet as on 31st March 2018 and 31st March 2019
I. Sources of Funds
| Particulars | 31–03–2018 (₹) | 31–03–2019 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| (a) Share Capital | 60,000 | 72,000 | 12,000 | 20 % Increase |
| (b) Reserve and Surplus | 24,000 | 30,000 | 6,000 | 25 % Increase |
| (A) Net Worth | 84,000 | 1,02,000 | 18,000 | 21.43 % Increase |
| (B) Borrowed Funds – Loan | 34,000 | 51,000 | 17,000 | 50 % Increase |
| Total Funds Available (A + B) | 1,18,000 | 1,53,000 | 35,000 | 29.66 % Increase |
II. Application of Funds
| Particulars | 31–03–2018 (₹) | 31–03–2019 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| A. Fixed Assets | 1,20,000 | 1,50,000 | 30,000 | 25 % Increase |
| Working Capital | ||||
| (1) Current Assets | 28,000 | 27,000 | (1,000) | (3.57 %) Decrease |
| Less : (2) Current Liabilities | 30,000 | 24,000 | (6,000) | (20 %) Decrease |
| B. Working Capital (Current Assets – Current Liabilities) | (2,000) | 3,000 | 5,000 | (250 %) Increase |
| Total Funds Applied (A + B) | 1,18,000 | 1,53,000 | 35,000 | 29.66 % Increase |
Practical problem | Q 4 | Page 377
Prepare Comparative Balance Sheet for the year ended 31.3.17 and 31.3.18
| Particulars | 31.3.17 (₹) | 31.3.18 (₹) |
|---|---|---|
| 1) Current liabilities | 60,000 | 48,000 |
| 2) Fixed Assets | 2,40,000 | 3,00,000 |
| 3) Loan | 68,000 | 1,02,000 |
| 4) Share Capital | 1,20,000 | 1,44,000 |
| 5) Reserve & Surplus | 48,000 | 60,000 |
| 6) Current Assets | 56,000 | 54,000 |
Solution:
Comparative Balance Sheet as on 31st March 2017 and 31st March 2018
I. Sources of Funds
| Particulars | 31–03–2017 (₹) | 31–03–2018 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| (a) Share Capital | 1,20,000 | 1,44,000 | 24,000 | 20 % Increase |
| (b) Reserve and Surplus | 48,000 | 60,000 | 12,000 | 25 % Increase |
| (A) Net Worth | 1,68,000 | 2,04,000 | 36,000 | 21.43 % Increase |
| (B) Borrowed Funds – Loan | 68,000 | 1,02,000 | 34,000 | 50 % Increase |
| Total Funds Available (A + B) | 2,36,000 | 3,06,000 | 70,000 | 29.66 % Increase |
II. Application of Funds
| Particulars | 31–03–2017 (₹) | 31–03–2018 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| A. Fixed Assets | 2,40,000 | 3,00,000 | 60,000 | 25 % Increase |
| Working Capital | ||||
| (1) Current Assets | 56,000 | 54,000 | (2,000) | (3.57 %) Decrease |
| Less : (2) Current Liabilities | 60,000 | 48,000 | (12,000) | (20 %) Decrease |
| B. Working Capital (Current Assets – Current Liabilities) | (4,000) | 6,000 | 10,000 | (250 %) Increase |
| Total Funds Applied (A + B) | 2,36,000 | 3,06,000 | 70,000 | 29.66 % Increase |
Practical problem | Q 5 | Page 377
Prepare Comparative Income Statement of Noha Limited for the year ended 31.3.17 and 31.3.18
| Particulars | 31.3.17 (₹) | 31.3.18 (₹) |
|---|---|---|
| Sales | 2,00,000 | 3,00,000 |
| Income Tax | 50% | 50% |
| Cost of Sales | 1,20,000 | 80,000 |
| Indirect Expenses | 8,000 | 12,000 |
Solution:
Comparative Income Statement of Noha Limited For the year ended 31st March, 2017 and 31st March, 2018
| Particulars | 31–03–2017 (₹) | 31–03–2018 (₹) | Absolute Change (₹) | Percentage Change |
|---|---|---|---|---|
| Sales | 2,00,000 | 3,00,000 | 1,00,000 | 50 % Increase |
| Less: Cost of Sales | 1,20,000 | 80,000 | (40,000) | (33.33 %) Decrease |
| Gross Profit | 80,000 | 2,20,000 | 1,40,000 | 175 % Increase |
| Less : Indirect Expenses | 8,000 | 12,000 | 4,000 | 50 % Increase |
| Net Profit before Tax | 72,000 | 2,08,000 | 1,36,000 | 188.89 % Increase |
| Less : Tax 50 % | 36,000 | 1,04,000 | 68,000 | 188.89 % Increase |
| Net Profit after Tax | 36,000 | 1,04,000 | 68,000 | 188.89 % Increase |
Practical problem | Q 6 | Page 378
Prepare comparative Income Statement of Sourabh Limited for the year ended 31.3.17 and 31.3.18
| Particulars | 31.3.17 (₹) | 31.3.18 (₹) |
|---|---|---|
| Sales | 4,00,000 | 6,00,000 |
| Indirect Expenses | 16,000 | 24,000 |
| Cost of Sales | 24,000 | 56,000 |
| Income Tax | 50% | 50% |
Solution:
Comparative Income Statement of Sourabh Limited For the year ended on 31st March, 2017 and 31st March, 2018
| Particulars | 31–03–2017 (₹) | 31–03–2018 (₹) | Absolute Change (₹) | Percentage (%) Change |
|---|---|---|---|---|
| Sales | 4,00,000 | 6,00,000 | 2,00,000 | 50 % Increase |
| Less : Cost of Sales | 24,000 | 56,000 | 32,000 | 133.33 % Increase |
| Gross Profit | 3,76,000 | 5,44,000 | 1,68,000 | 44.68 % Increase |
| Less : Indirect Expenses | 16,000 | 24,000 | 8,000 | 50 % Increase |
| Net Profit before Tax | 3,60,000 | 5,20,000 | 1,60,000 | 44.44 % Increase |
| Less : Tax 50 % | 1,80,000 | 2,60,000 | 80,000 | 44.44 % Increase |
| Net Profit after tax | 1,80,000 | 2,60,000 | 80,000 | 44.44 % Increase |
Practical problem | Q 7 | Page 378
Following is the Balance Sheet of Sakshi Traders for the year ended 31.3.17 and 31.3.18. Prepare common-size Balance Sheet for the year 31.3.17 and 31.3.18
| Liabilities | 31.3.17 (₹) | 31.3.18 (₹) | Assets | 31.3.17 (₹) | 31.3.18 (₹) |
|---|---|---|---|---|---|
| Equity Share Capital | 80,000 | 80,000 | Fixed Assets | 1,20,000 | 1,44,000 |
| Pref. Share Capital | 20,000 | 20,000 | Investment | 20,000 | 20,000 |
| Reserve & Surplus | 20,000 | 24,000 | Current Assets | 60,000 | 48,000 |
| Secured Loan | 40,000 | 16,000 | |||
| Unsecured Loan | 20,000 | 36,000 | |||
| Current Liabilities | 20,000 | 36,000 | |||
| Total | 2,00,000 | 2,12,000 | Total | 2,00,000 | 2,12,000 |
Solution:
Common Size Statement of Balance Sheet of Sakshi Traders as on 31st March 2017 and 31st March 2018
| Particulars | Amount (₹) | % to total of Balance Sheet | ||
|---|---|---|---|---|
| 31 – 03 – 2017 (₹) | 31 – 03 – 2018 (₹) | 31 – 03 – 2017 (%) | 31 – 03 – 2018 (%) | |
| I. Sources of Funds : | ||||
| (1) Owner’s Equity | ||||
| Equity Share Capital | 80,000 | 80,000 | 44.45 | 45.45 |
| Preference Shares Capital | 20,000 | 20,000 | 11.11 | 11.36 |
| Reserve and Surplus | 20,000 | 24,000 | 11.11 | 13.64 |
| Net Worth | 1,20,000 | 1,24,000 | 66.67 | 70.45 |
| (2) Borrowed Funds | ||||
| Secured Loans | 40,000 | 16,000 | 22.22 | 9.09 |
| Unsecured Loans | 20,000 | 36,000 | 11.11 | 20.46 |
| 60,000 | 52,000 | 33.33 | 29.55 | |
| Total Borrowed Funds | 1,80,000 | 1,76,000 | 100 | 100 |
| II. Application of Funds | ||||
| (1) Fixed Assets | 1,20,000 | 1,44,000 | 66.67 | 81.82 |
| (2) Investments | 20,000 | 20,000 | 11.11 | 11.36 |
| 1,40,000 | 1,64,000 | 77.78 | 93.18 | |
| (3) Working Capital | ||||
| (A) Current Assets | 60,000 | 48,000 | - | - |
| Less : (B) Current Liabilities | 20,000 | 36,000 | - | - |
| 40,000 | 12,000 | 22.22 | 6.82 | |
| Total Funds Applied | 1,80,000 | 1,76,000 | 100 | 100 |
Practical problem | Q 8 | Page 378
Prepare common size Income Statement for the year ended 31.3.17 and 31.3.18.
| Particulars | 31.3.17 (₹) | 31.3.18 (₹) |
|---|---|---|
| Sales | 2,00,000 | 2,50,000 |
| Cost of goods sold | 1,50,000 | 1,70,000 |
| Office and Administrative Expenses | 4,000 | 6,000 |
| Selling and Distribution Expenses | 6,000 | 1,000 |
Solution:
Common Size Income Statement for the year ended on 31st March, 2017 and 31st March, 2018
| Particulars | 31–03–2017 | 31–03–2018 | ||
|---|---|---|---|---|
| Amount (₹) | Percentage (%) of Net Sales | Amount (₹) | Percentage (%) of Net Sales | |
| Sales | 2,00,000 | 100.00 | 2,50,000 | 100.00 |
| Less: Cost of goods sold | 1,50,000 | 75.00 | 1,70,000 | 68.00 |
| Gross Profit | 50,000 | 25.00 | 80,000 | 32.00 |
| Less: Operating Expenses: | ||||
| Office and Administrative Expenses | 4,000 | 2.00 | 6,000 | 2.40 |
| Selling and Distribution Expenses | 6,000 | 3.00 | 1,000 | 0.40 |
| Total Operating Expenses | 10,000 | 5.00 | 7,000 | 2.80 |
| Net Profit (Operating Profit) | 40,000 | 20.00 | 73,000 | 29.20 |
Practical problem | Q 9 | Page 378
Following is the Balance Sheet of Sakshi Limited. Prepare cashflow statement.:
| Liabilities | 31.3.17 (₹) | 31.3.18 (₹) | Assets | 31.3.17 (₹) | 31.3.18 (₹) |
|---|---|---|---|---|---|
| Share Capital | 2,00,000 | 3,00,000 | Cash | 20,000 | 30,000 |
| Creditors | 60,000 | 90,000 | Debtors | 1,40,000 | 2,50,000 |
| Profit and Loss A/c | 40,000 | 70,000 | Stock | 80,000 | 70,000 |
| Land | 60,000 | 1,10,000 | |||
| Total | 3,00,000 | 4,60,000 | Total | 3,00,000 | 4,60,000 |
Solution:
Cash Flow Statement For the year ended 31st March, 2018 (Comparison of 2018 with 2017)
| Particulars | Amount (₹) | Amount (₹) |
|---|---|---|
| (A) Cash flow from Operating activities | ||
| Net Profit during the year (70,000 - 40,000) | 30,000 | |
| Adjustments for changes in Working Capital: | ||
| Add: Decrease in Stock (80,000 - 70,000) | 10,000 | |
| Add: Increase in Creditors (90,000 - 60,000) | 30,000 | |
| Less: Increase in Debtors (2,50,000 - 1,40,000) | (1,10,000) | |
| Net Cash used in Operating activities (A) | (40,000) | |
| (B) Cash flow from Investing activities | ||
| Purchase of Land (1,10,000 - 60,000) | (50,000) | |
| Net Cash used in Investing activities (B) | (50,000) | |
| (C) Cash flow from Financing activities | ||
| Increase in Share Capital (3,00,000 - 2,00,000) | 1,00,000 | |
| Net Cash from Financing activities (C) | 1,00,000 | |
| Net increase in cash and cash equivalents (A + B + C) | 10,000 | |
| Add: Cash and cash equivalents at the beginning of period (Cash 31.3.17) | 20,000 | |
| Cash and cash equivalents at the end of period (Cash 31.3.18) | 30,000 | |
Practical problem | Q 10 | Page 378
From the following Balance Sheet of Konal Traders prepare cash flow statement.
| Liabilities | 31.3.17 (₹) | 31.3.18 (₹) | Assets | 31.3.17 (₹) | 31.3.18 (₹) |
|---|---|---|---|---|---|
| Share Capital | 2,00,000 | 2,50,000 | Cash | 30,000 | 47,000 |
| Creditors | 70,000 | 45,000 | Debtors | 1,20,000 | 1,15,000 |
| Profit and Loss A/c | 10,000 | 23,000 | Stock | 80,000 | 90,000 |
| Land | 50,000 | 66,000 | |||
| Total | 2,80,000 | 3,18,000 | Total | 2,80,000 | 3,18,000 |
Solution:
Cash Flow Statement For the year ended on 31st March 2018 (Comparison of 2018 with 2017)
| Particulars | Amount (₹) | Amount (₹) |
|---|---|---|
| (A) Cash flow from Operating activities | ||
| Net Profit during the year (23,000 - 10,000) | 13,000 | |
| Adjustments for changes in Working Capital: | ||
| Add: Decrease in Debtors (1,20,000 - 1,15,000) | 5,000 | |
| Less: Increase in Stock (90,000 - 80,000) | (10,000) | |
| Less: Decrease in Creditors (70,000 - 45,000) | (25,000) | |
| Net Cash used in Operating activities (A) | (17,000) | |
| (B) Cash flow from Investing activities | ||
| Purchase of Land (66,000 - 50,000) | (16,000) | |
| Net Cash used in Investing activities (B) | (16,000) | |
| (C) Cash flow from Financing activities | ||
| Increase in Share Capital (2,50,000 - 2,00,000) | 50,000 | |
| Net Cash from Financing activities (C) | 50,000 | |
| Net increase in cash and cash equivalents (A + B + C) | 17,000 | |
| Add: Cash and cash equivalents at the beginning of period (Cash 31.3.17) | 30,000 | |
| Cash and cash equivalents at the end of period (Cash 31.3.18) | 47,000 | |
Practical problem | Q 11 | Page 379
A Company had the following Current Assets and Current Liabilities:
| Debtors | ₹ 1,20,000 | Creditors | ₹ 60,000 |
| Bills Payable | ₹ 40,000 | Stock | ₹ 60,000 |
| Loose Tools | ₹ 20,000 | Bank overdraft | ₹ 20,000 |
Calculate Current Ratio.
Solution:
(1) Current Assets = Debtors + Stock + Loose Tools
= 1,20,000 + 60,000 + 20,000
= ₹ 2,00,000
(2) Current liabilities = Creditors + Bills payable + Bank overdraft
= 60,000 + 40,000 + 20,000
= ₹ 1,20,000
(3) Current ratio = Current Assets ÷ Current Liabilities
∴ Current Ratio = 2,00,000 ÷ 1,20,000
∴ Current Ratio = 5 ÷ 3
∴ Current Ratio = 5:3
Practical problem | Q 12 | Page 379
Current Assets of Company ₹ 6,00,000 and its Current Ratio is 2:1. Find Current Liabilities.
Solution:
Current Ratio = Current Assets ÷ Current Liabilities
2 ÷ 1 = 6,00,000 ÷ Current Liabilities
2 × Current Liabilities = 6,00,000 × 1
∴ Current Liabilities = 6,00,000 ÷ 2
∴ Current Liabilities = ₹ 3,00,000
Practical problem | Q 13 | Page 379
Current Liabilities = ₹ 3,00,000
Working Capital = ₹ 8,00,000
Inventory = ₹ 2,00,000
Calculate Quick Ratio.
Solution:
Current assets = Current liabilities + Working capital
= 3,00,000 + 8,00,000
= ₹ 11,00,000
Quick assets = Current assets – Inventory
= 11,00,000 – 2,00,000
= ₹ 9,00,000
Quick liability = Current liabilities – Bank O / D (Assuming Bank O/D is nil as not given)
= ₹ 3,00,000
Quick ratio = Quick Assets ÷ Quick Liabilities
∴ Quick Ratio = 9,00,000 ÷ 3,00,000
∴ Quick Ratio = 3 ÷ 1
∴ Quick Ratio = 3:1
Practical problem | Q 14 | Page 379
Calculate the Gross Profit Ratio
| Sales | ₹ 2,70,000 |
| Net purchases | ₹ 1,50,000 |
| Sales Return | ₹ 20,000 |
| Closing Stock | ₹ 25,000 |
| Opening Stock | ₹ 45,000 |
Solution:
Net sales = Sales – Sales return
= 2,70,000 – 20,000
= ₹ 2,50,000
Cost of goods sold = Opening stock + Net purchase – Closing stock
= 45,000 + 1,50,000 – 25,000
= ₹ 1,70,000
Gross profit = Net sales – Cost of goods sold
= 2,50,000 – 1,70,000
= ₹ 80,000
Gross Profit ratio = (Gross Profit ÷ Net Sales) × 100
∴ Gross Profit Ratio = (80,000 ÷ 2,50,000) × 100
∴ Gross Profit Ratio = 32%
Practical problem | Q 15 | Page 379
Calculate Net Profit Ratio from the following
| Sales | ₹ 3,80,000 |
| Cost of good sold | ₹ 2,60,000 |
| Indirect Exp | ₹ 60,000 |
Solution:
| Sales | ₹ 3,80,000 |
| Less: Cost of goods sold | ₹ 2,60,000 |
| Gross profit | ₹ 1,20,000 |
| Less: Indirect expense | ₹ 60,000 |
| Net profit | ₹ 60,000 |
Net Profit Ratio = (Net Profit ÷ Sales) × 100
∴ Net Profit Ratio = (60,000 ÷ 3,80,000) × 100
∴ Net Profit Ratio = 15.79 %
Practical problem | Q 16 | Page 379
Calculate Operating Ratio
| Cost of good sold | ₹ 3,50,000 |
| Operating Exp. | ₹ 30,000 |
| Sales | ₹ 5,00,000 |
| Sales Return | ₹ 30,000 |
Solution:
Net sales = Sales – Sales return
= 5,00,000 – 30,000
= ₹ 4,70,000
Operating ratio = [(Cost of Goods Sold + Operating Expense) ÷ Net Sales ] × 100
∴ Operating Ratio = [(3,50,000 + 30,000) ÷ 4,70,000] × 100
∴ Operating Ratio = (3,80,000 ÷ 4,70,000) × 100
∴ Operating Ratio = 80.85 %
Practical problem | Q 17 | Page 379
Calculate
| 1) Current Assets | ₹ 3,00,000 |
| 2) Current Liabilities | ₹ 1,00,000 |
What is current Ratio.
Solution:
Current Ratio = Current Assets / Current Liabilities
∴ Current Ratio = 3,00,000 / 1,00,000
∴ Current Ratio = 3 / 1
∴ The Current Ratio is 3:1
Book-keeping and Accountancy 12th Standard
HSC Maharashtra State Board. Latest Syllabus.
Chapter 1: Introduction to Partnership and Partnership Final Accounts
Chapter 2: Accounts of ‘Not for Profit’ Concerns
Chapter 3: Reconstitution of Partnership (Admission of Partner)
Chapter 4: Reconstitution of Partnership (Retirement of Partner)
Chapter 5: Reconstitution of Partnership (Death of Partner)
Chapter 6: Dissolution of Partnership Firm
Chapter 8: Company Accounts - Issue of Shares
Chapter 9: Analysis of Financial Statements
Chapter 10: Computer In Accounting
ACCOUNTS BOARD PAPERS
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