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Model Question Paper

6th Semester

Financial Reporting and Financial Statement Analysis

Time: 3 Hours Full Marks – 80

Group-A

Answer the following questions: (3×5=15)

1. From the following information, prepare a statement showing the changes in working
capital during the year:

Assets and Liabilities 31.03.2018 31.03.2019

Fixed Assets 160000 160000
Stock 50000 60000
Debtors 60000 30000
Prepaid Expenses 20000 15000
Cash 10000 45000
Outstanding Expenses 20000 45000
Creditors 130000 60000
Accumulated Depreciation on fixed Assets 30000 35000
Share Capital 100000 100000
Reserve and surplus 20000 10000

2. What are the purposes of developing conceptual framework in respect of International

Financial Reporting Standard?
Or,
Discuss about objectives and scope of Indian accounting standard 16

3. A business has a Current Ratio of 3:1. Its Net Working Capital is Rs. 400000 and its
Inventories are values at Rs. 250000. Calculate Quick Ratio.

Group-B

Answer the following questions: (2×10=20)

4. Explain Diluted earnings per share as per Indian accounting standard 33.

Or,

Define following term as per Indian Accounting Standard 33. (10marks)

a. Anti-dilution
b. Contingent Share Agreement
c. Contingently issue-able Ordinary Share
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d. Dilution

5. Prepare Comparative Income Statement for the year ended 2018 and 2019 and
comment on that:

Particulars 31.12.2018 31.12.2019

Net Sales 800000 960000
Cost of Goods Sold 536000 640000
Administrative Expenses 96000 112000
Selling Expenses 24000 40000
Non-Operating Incomes 16000 24000
Non-Operating Expenses 8000 12000
Tax Rate 35% 35%

Group-C

Answer the following questions: (3×15=45)

6. The following are the Balance Sheets of H ltd. and S ltd. as on 31st march 2020.

Particulars H ltd. S ltd.

Rs. Rs.
I. Equity and Liabilities
1. Shareholders’ Fund:
a) Share Capital: Equity Shares of Rs.10 each 1000000 300000
b) Reserves & Surplus:
General Reserve 300000 150000
Surplus in Profit and Loss Statement 400000 250000
2. Non-Current Liabilities:
Long-Term Borrowings: 12% Debentures 500000 300000
3. Current Liabilities:
a) Trade Payables:
Sundry Creditors 150000 100000
Bills Payables 170000 50000
b) Current Account with H ltd. -- 50000
Total 2520000 1200000
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II. Assets
1. Non-Current Assets:
a) Fixed Assets:
Land and Building 850000 500000
Plant and Machinery 500000 200000
Furniture 200000 150000
b) Non-Current Investment:
Investment in S ltd.:
12% Debentures (Nominal Value Rs.200000) 220000 --
16000 Equity Shares 280000 --
2. Current Assets:
a) Inventories 200000 150000
b) Trade Receivables:
Sundry Debtors 100000 100000
Bills Receivables 50000 50000
c) Current Account with S ltd. 50000 --
d) Cash and Cash Equivalents 70000 50000
Total 2520000 1200000
Additional Information:

i. H ltd. acquired the shares in S ltd. on 1st July 2019.

ii. On 1st April 2019 S ltd. had Rs.130000 and Rs.110000 in General Reserve and Credit
balance on Profit and Loss Statement respectively.
iii. On 1st October 2019 S ltd. declared a dividend @ 20% for the year ended 31st March
2019, H ltd. wrongly credited the same in its Profit and Loss Account.
iv. On 1st January 2020, S ltd. issued one fully paid up Equity Share for every two shares
held as bonus shares out of balances of its General Reserve as on 31st March 2019.
v. On 31st March 2020, all Bills Payables in S ltd.’s Balance Sheet were acceptances in
favour of H ltd. but on that date H ltd. held only Rs.30000 of those acceptances in
hands and the rest having been endorsed in favour of its creditors.
vi. On 31st March 2020, S ltd.’s stock includes goods which it had purchased for
Rs.100000 from H ltd. on which H ltd. made a profit @ 25%.
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7. From the following you’re required to prepare either Fund Flow Statement or Cash
Flow Statement of ABC ltd. during the year 2018-2019

Balance Sheet of ABC ltd. as on 31.12.2018 and 31.12.2019

Liabilities 2018 2019 Assets 2018 2019

Equity Share Capital Goodwill 60 45
@Rs.10each 350 450 Patent 30 25
Preference Share Capital Land and Building 520 580
@Rs.100each 250 120 Plant and Machinery 310 375
General Reserve 150 170 Furniture 70 85
Profit and Loss Account 70 130 Investments 70 90
Share Premium 15 15 Inventories 80 84
Capital Redemption Sundry Debtors 60 75
Reserve -- 80 Bills Receivables 35 25
15% Debenture 150 200 Cash and Cash Equivalents 27 26
Term-Loan 200 130 Loan and Advances 38 40
Provision for Depreciation 35 45 Misc. Expenditure 23 15
Sundry Creditors 25 35
Bills Payables 20 17
Proposed Dividend 30 35
Provision for Taxation 28 30
Outstanding Interest on
Debenture -- 03
Unclaimed Dividend -- 05
1323 1465 1323 1465
Additional Information:

a) An obsolete machine W.D.V Rs.10000 having 50% provision for depreciation was
disposed off for Rs.12000
b) Preference Shares are redeemed at 10% premium
c) Opening stock of Rs.55000 which was previously valued at 10% above cost was
written up to its original cost
d) Estimated tax liabilities provided for the year Rs.27000
e) Dentures are issued at 5% discount
f) Bonus Shares at one share of every seven Equity Shares were issued out of General
Reserve.
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8. Zodiac ltd. requests you to project its Profit & Loss Account for the next year ending
on 31st March 2021 and to project its Balance Sheet on that date on the basis of
following particulars:

Gross Profit Ratio 25%

Stock Turnover Ratio 5 times
Gross Profit Expected Rs.2500000
Average Debt Collection Period 3 months
Creditors Velocity 3 months
Proprietary Ratio (fixed assets to capital employed) 80%
Current Ratio 2
Capital Gearing Ratio (preference shares and debentures to equity funds) 3:7
Net Profit to Equity Share Capital 10%
General Reserve and Profit & Loss Account to Equity Share Capital 1:4
Preference Share Capital to Debenture 2
Cost of Goods Sold consists 50% for materials and 50% for wages and
overhead
You’re requested to comply with the request.
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Solution:
1.
Statement Showing Changes in Working capital
Particulars 31.03.2018 31.03.2019 Change in Working Capital
Increase Decrease
Current Assets:
Stock 50000 60000 10000 ---
Debtors 60000 30000 --- 30000
Prepaid Expenses 20000 15000 --- 5000
Cash 10000 45000 35000 ---
Total Current Assets (A) 140000 150000
Current Liabilities:
Outstanding Expenses 20000 45000 --- 25000
Creditors 130000 60000 70000 ---
Total Current Liabilities (B) 150000 105000
Working Capital (A - B) (10000) 45000
Increase in Working Capital 55000 --- --- 55000
45000 45000 115000 115000

2.
The purpose of the Conceptual Framework is summarized as follows:

1. To assist the IASB in the development of future accounting standards and in its
review of existing accounting standards, ensuring consistency across standards
2. To assist the IASB in promoting harmonization of regulations, accounting standards
and procedures relating to the presentation of financial statements by providing a
basis for reducing the number of alternative accounting treatments permitted by
accounting standards,
3. To assist national standard-setting bodies in developing national accounting
standards;
4. To assist preparers of financial statements in applying international financial reporting
standards and in dealing with topics that have yet to form the subject of an accounting
standard.
5. To assist users of financial statements in interpreting the information contained in
financial statements prepared in compliance with international financial reporting
standards;
6. To assist auditors in forming an opinion on whether financial statements comply with
international accounting standards; and
7. To provide those who are interested in the work of the IASB with information about
its approach to the formulation of accounting standards.
Keep in mind this Conceptual Framework is not an accounting standard itself, and it
doesn’t override the requirements of any existing accounting standard.
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Or,

Objective of Ind AS16:

One fundamental problem in financial reporting is how to account periodically for

performance when many of the expenditures an entity incurs in the current period
also contribute to future accounting periods. Expenditure on property, plant and
equipment ('PP&E') is the best example of this difficulty.

The objective of this Standard is to prescribe the accounting treatment for property,
plant and equipment so that users of the financial statements can discern information
about an entity’s investment in its property, plant and equipment and the changes in
such investment.

Scope:
This Standard shall be applied in accounting for property, plant and equipment
except when another Standard requires or permits a different accounting treatment.

All property, plant and equipment are within the scope of Ind AS 16 except as
follows:

(a) Property, plant and equipment classified as held for sale in accordance with Ind AS
105, Non-current Assets Held for Sale and Discontinued Operations.

(b) Biological assets related to agricultural activity other than bearer plants (covered by
Ind AS 41, Agriculture). This Standard applies to bearer plants but it does not apply
to the produce on bearer plants.

(c) The recognition and measurement of exploration and evaluation assets (covered by
Ind AS 106 Exploration for and Evaluation of Mineral Resources).

(d) Mineral rights and mineral reserves such as oil, natural gas, and similar non-
regenerative resources.

3. Current Ratio =
Or, =
Or, Current Assets = 3 × Current Liabilities = 3 Current Liabilities

Again, Working Capital = Current Assets – Current Liabilities

Or, 400000 = Current Assets – Current Liabilities
Or, 400000 = 3 Current Liabilities – Current Liabilities
Or, 2 Current Liabilities = 400000
Or, Current Liabilities = 400000/2 = Rs. 200000

Therefore, Current Assets = 3 Current Liabilities = 3 × 200000 = Rs. 600000

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! " #$$$$$ %&$$$$ &$$$$

Now, Quick Ratio = = = = 1.75: 1
%$$$$$ %$$$$$

4.
Diluted earnings per share
An entity shall calculate diluted earnings per share amounts for profit or loss
attributable to ordinary equity holders of the parent entity and, if presented, profit or
loss from continuing operations attributable to those equity holders.
For the purpose of calculating diluted earnings per share, an entity shall adjust profit
or loss attributable to ordinary equity holders of the parent entity, and the weighted
average number of shares outstanding, for the effects of all dilutive potential ordinary
shares.
The objective of diluted earnings per share is consistent with that of basic earnings per
share—to provide a measure of the interest of each ordinary share in the performance
of an entity—while giving effect to all dilutive potential ordinary shares outstanding
during the period. As a result:
a. profit or loss attributable to ordinary equity holders of the parent entity is increased by
the after-tax amount of dividends and interest recognized in the period in respect of
the dilutive potential ordinary shares and is adjusted for any other changes in income
or expense that would result from the conversion of the dilutive potential ordinary
shares; and
b. The weighted average number of ordinary shares outstanding is increased by the
weighted average number of additional ordinary shares that would have been
outstanding assuming the conversion of all dilutive potential ordinary shares.
$.Antidilution is an increase in earnings per share or a reduction in loss per share
resulting from the assumption that convertible instruments are converted, that options
or warrants are exercised, or that ordinary shares are issued upon the satisfaction of
specified conditions.
A contingent share agreement is an agreement to issue shares that is dependent on the
satisfaction of specified conditions.
Contingently issuable ordinary shares are ordinary shares issuable for little or no cash
or other consideration upon the satisfaction of specified conditions in a contingent
share agreement.
Dilution is a reduction in earnings per share or an increase in loss per share resulting
from the assumption that convertible instruments are converted, that options or
warrants are exercised, or that ordinary shares are issued upon the satisfaction of
specified conditions
For the purpose of calculating diluted earnings per share, an entity shall adjust profit
or loss attributable to ordinary equity holders of the parent entity by considering;
Any dividends or other items related to dilutive potential ordinary shares deducted in
arriving at profit or loss attributable to ordinary equity holders of the parent entity as
calculated in accordance with paragraph12;
Any interest recognized in the period related to dilutive potential ordinary shares; and
Any other changes in income or expense that would result from the conversion of the
dilutive potential ordinary shares.
For the purpose of calculating diluted earnings per share, the number of ordinary
shares shall be the weighted average number of ordinary shares calculated in
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accordance with paragraphs 19 and 26, plus the weighted average number of ordinary
shares that would be issued on the conversion of all the dilutive potential ordinary
shares into ordinary shares. Dilutive potential ordinary shares shall be deemed to have
been converted into ordinary shares at the beginning of the period or, if later, the date
of the issue of the potential ordinary shares.

Or,

Antidilution is an increase in earnings per share or a reduction in loss per share

resulting from the assumption that convertible instruments are converted, that options
or warrants are exercised, or that ordinary shares are issued upon the satisfaction of
specified conditions.

A contingent share agreement is an agreement to issue shares that is dependent on the

satisfaction of specified conditions.

Contingently issuable ordinary shares are ordinary shares issuable for little or no cash
or other consideration upon the satisfaction of specified conditions in a contingent
share agreement.

Dilution is a reduction in earnings per share or an increase in loss per share resulting
from the assumption that convertible instruments are converted, that options or
warrants are exercised, or that ordinary shares are issued upon the satisfaction of
specified conditions.

5.

Comparative Income Statement for year ended on 31.12.2018 and 31.12.2020

Particulars 2018 2019 Absolute Percentage

Rs. Rs. Change Change
Rs. Rs.
Sales 800000 960000 160000 20.00%
Less: Cost of Goods Sold 536000 640000 104000 19.40%
Gross Profit 264000 320000 56000 21.21%
Less: Operating Expenses:
Administrative Expenses 96000 112000 16000 16.67%
Selling Expenses 24000 40000 16000 66.67%
Operating Profit 144000 168000 24000 16.67%
Add: Non-Operating Incomes 16000 24000 8000 50.00%
160000 192000 32000 20.00%
Less: Non-Operating Expenses 8000 12000 4000 50.00%
Profit Before Tax 152000 180000 28000 18.42%
Less: Tax @35% 53200 63000 9800 18.42%
Profit After Tax 98800 117000 16200 16.40%
Comments:
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a) Analysis of Change in Gross Profits: Over the period of study, sales increased by
Rs.160000 whereas the cost of goods sold are Rs.56000 more. In relative terms there
has been an increase of 20% as against a rise by 19.4%. So there is an edge of sales
over cost of goods sold. The trend of gross profit is showing a healthy and increasing
trend.
b) Change in Operating Expenses: Operating expenses are expected to remain more or
less the same and fully under control for a similar level of operating activities. Here,
the operational level might have become more as reflected by the increase in sales
volume. However, such change is marginal. But the operating expenses have
increased by 16.67% and 66.67%.
c) Change in Operating Profit: In 2019, the sales have increased and the gross profit
has increased by 21.21% but the percentage increase in operating profit is 16.67%. As
already said, the increase in operating profit has been affected by the increase in
operating expenses.
d) Analysis of change in Profit: The profit before tax has increased by Rs.28000 or by
18.42%. The increase in non-operating income is marginally more than the non-
operating expenses. This shows that the profitability of the company over the period
of study could improve mainly due to operational efficiency.

6.

Consolidated Balance Sheet of H ltd. and its subsidiary S ltd.

As on 31st March

Particulars Note No Amount(Rs.)

I. Equity and Liabilities
1. Shareholders’ Fund:
a) Share Capital i 1000000
b) Reserve & Surplus ii 940000
2. Minority Interest 140000
3. Non-Current Liabilities:
Long-Term Borrowings: 12% Debentures iii 600000
4. Current Liabilities:
Trade Payables iv 440000
Total 3120000
II. Assets
1. Non-Current Assets:
Fixed Assets: Tangible v 2400000
2. Current Assets:
a) Inventories vi 330000
b) Trade Receivables vii 270000
c) Cash and Cash Equivalents viii 120000
Total 3120000
Note No:
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i. Share Capital:

Particulars Amount(Rs.)
Authorised Capital ---
Issued and subscribed Capital:
Equity Shares of Rs.10 each 1000000
1000000
ii. Reserve & Surplus

Particulars Amount(Rs.)
Consolidated Balance of General Reserve 372000
Balance of Consolidated Profit and Loss Statement 456000
Capital Reserve 112000
940000
iii. Long-Term Borrowings

Particulars Amount(Rs.)
12% Debentures:
Balance of H ltd. 500000
Balance of S ltd. (Rs.300000 – Rs.200000) 100000
600000
iv. Trade Payables:

Particulars Amount(Rs.)
Sundry Creditors:
Balance of H ltd. 150000
Balance of S ltd. 100000 250000
Bills Payables:
Balance of H ltd. 170000
Balance of S ltd. 50000
220000
Less: Mutual Debt Set Off 30000 190000
440000
v. Fixed Assets – Tangible

Particulars Amount(Rs.)
Land and Building:
Balance of H ltd. 850000
Balance of S ltd. 500000 1350000
Plant and Machinery
Balance of H ltd. 500000
Balance of S ltd. 200000 700000
Furniture:
Balance of H ltd. 200000
Balance of S ltd. 150000 350000
2400000
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vi. Inventories

Particulars Amount(Rs.)
Inventories:
Balance of H ltd. 200000
Balance of S ltd. 150000
350000
Less: Unrealised Profit included in Stock (100000 × 25/125) 20000
330000
vii. Trade Receivables

Particulars Amount(Rs.)
Sundry Debtors:
Balance of H ltd. 100000
Balance of S ltd. 100000 200000
Bills Receivables:
Balance of H ltd. 50000
Balance of S ltd. 50000
100000
Less: Mutual Debt Set Off 30000 70000
270000
viii. Cash and Cash Equivalents

Particulars Amount(Rs.)
Cash:
Balance of H ltd. 70000
Balance of S ltd. 50000
120000

Note: Current Account

Current Account with H ltd.:

Particulars Amount(Rs.)
Current Account with H ltd. 50000
Less: Mutual Debt Set Off 50000
Nil
Current Account with S ltd.:

Particulars Amount(Rs.)
Current Account with S ltd. 50000
Less: Mutual Debt Set Off 50000
Nil

Working Notes:

a) Date of Acquisition – 1st July 2019

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Therefore, Pre-Acquisition Period = 01.04.2019 to 30.06.2019 i.e. 3 months

And, Post-Acquisition Period = 01.07.2019 to 31.03.2020 i.e. 9 months

b) Acquisition and Minority Interest:

S ltd. issued bonus share on 01.01.2020 in the ratio 1:2

Total number of shares after bonus shares issued is = 300000/10 = 30000

So, number of bonus shares issued by S ltd. = 300000/(1+2) = 10000

Therefore, number Equity Shares held by S ltd. before issuing bonus shares =
[300000/(1+2)]×2 = 20000

Particulars S ltd.(Shares)
Number of Equity Shares held by S ltd. at time of Acquisition 20000
Interest of H ltd. 16000 (80%)
Minority Interest 4000 (20%)

c) Analysis of Profit of S ltd.

Particulars Amount(Rs.) Pre- Post-Acquisition

Acquisition Portion
Profit Revenue Revenue
Or, Capital Reserve Profit
Profit (Rs.) (Rs.) (Rs.)
Balance of Profit and Loss Statement as on 01.04.2019 110000
Less: Pre-Acquisition Dividend for the year ended 40000 70000
31.03.2019
Profit Earned during the year (250000 – 70000) 180000
Profit earned during Pre-Acquisition Period 45000
(180000×3/12)
Profit earned during Post-Acquisition Period 135000
(180000×9/12)
Balance of General Reserve as on 01.04.2019 130000
Less: Bonus shares issued out of General Reserve 100000 30000
(10000×10)
Transfer to General Reserve during the year 120000
(150000 –30000)
Transfer to General Reserve during Pre-Acquisition 30000
Period (120000×3/12)
Transfer to General Reserve during Post-Acquisition 90000
Period (120000×9/12)
175000 90000 135000
Less: Minority Interest @20% 35000 18000 27000
Share of H ltd. 140000 72000 108000
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d) Calculation of Minority Interest:

Particulars Amount(Rs.) Amount(Rs.)

Face Value of Equity Shares held (4000×10) 40000
Add: Face Value of Bonus Shares held [(10000×20%)×10] 20000 60000
Add: Share of Capital Profit 35000
Add: Share of Revenue Reserve 18000
Add: Share Revenue Profit 27000 80000
140000
e) Statement showing calculation of Goodwill or Capital Reserve from Cost of Control:

Particulars Amount(Rs.) Amount(Rs.)

Cost of Investment in S ltd.:
In Equity Shares 280000
In Debentures 220000 500000
Less: Face value of Investment:
In Equity Shares 160000
In Debentures 200000 360000
140000
Less: Face of Bonus Shares Received by H ltd. 80000
60000
Less: Share of Capital Profit 140000
(80000)
Less: Share of Pre-Acquisition dividend wrongly credited
in its Profit and Loss Account by H Ltd. 32000
Capital Reserve 112000
f) Consolidated Profit and Loss Statement:

Particulars Amount(Rs.)
Balance of Profit and Loss Statement of H ltd. as on 31.03.2020 400000
Less: Share of Pre-Acquisition dividend wrongly credited 32000
368000
Add: Share of Post-Acquisition Profit 108000
476000
Less: Unrealised profit included in stock (100000×25/125) 20000
456000
g) Consolidated General Reserve:

Particulars Amount(Rs.)
Balance of General Reserve of H ltd. as on 31.03.2020 300000
Add: Share of Revenue Reserve 72000
372000
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7. Fund Flow Statement:-

Fund Flow Statement of ABC ltd. for the year ended 31.12.2019

Sources Amount(Rs.) Applications Amount(Rs.)

Issue of Equity Shares 63 Redemption of Preference Shares 143
Issue of Debentures 47.5 Term Loan paid off 70
Sale proceeds of Plant and Machinery 12 Dividend paid 25
Fund From Operations 325.5 Income Tax paid 25
Purchase of Plant and Machinery 85
Purchase of Land and Building 60
Purchase of Furniture 15
Purchase of Investments 20
Increase in Working Capital 05
448 448

Statement showing changes in Working Capital of ABC ltd. for the year ended
31.12.2019

Particulars 2018 2019 Change in Working

Capital
Decrease Increase
Current Assets:
Inventories [80 – (55×10/110)] 75 84 09 --
Sundry Debtors 60 75 15 --
Bills Receivables 35 25 -- 10
Cash and Cash Equivalents 27 26 -- 01
Loan and Advances 38 40 02 --
Total Current Assets (A) 235 250
Current Liabilities:
Sundry Creditors 25 35 -- 10
Bills Payables 20 17 03 --
Outstanding Interest on Debenture -- 03 -- 03
Total Current Liabilities (B) 45 55
Working Capital (A – B) 190 195 29 24
Increase in Working Capital 05 -- -- 05
195 195 29 29

Working Notes:

Dr. Equity Share Capital A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Share Premium A/C 13 By Balance b/d 350
(Premium on Issue) By General Reserve A/C 50
(Bonus Share)
To Balance c/d 450 By Bank A/C (New Issue) 63
463 463
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Dr. Preference Share Capital A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Bank A/C (Redemption) 143 By Balance b/d 250
By Share Premium A/C 13
To Balance c/d 120 (Premium on Redemption)
(130×10%)
263 263

Dr. General Reserve A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Equity Share Capital A/C 50 By Balance b/d 150
(Bonus Share) [350×1/7]
To Capital Redemption 80 By Profit and Loss A/C 150
Reserve (Transferred to General
To Balance c/d 170 Reserve)
300 300

Dr. Share Premium A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Preference Share Capital 13 By Balance b/d 15
A/C (Premium on
Redemption) By Equity Share Capital A/C 13
To Balance c/d 15 (Premium on Issue)
28 28

Dr. 15% Debenture A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

By Balance b/d 150
By Bank A/C (New Issue) 47.5
By Profit and Loss A/C 2.5
(Discount on Issue)
To Balance c/d 200 [50 – (50×5%)]
200 200

Dr. Term Loan A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Bank A/C (Paid off) 70 By Balance b/d 200
To Balance c/d 130
200 200
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Dr. Proposed Dividend A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Unclaimed Dividend A/C 05 By Balance b/d 30
To Bank A/C (Dividend Paid) 25 By Profit and Loss A/C 35
To Balance c/d 35 (Dividend Declared)
65 65

Dr. Provision for Taxation A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Bank A/C (Tax Paid) 25 By Balance b/d 28
By Profit and Loss A/C (Tax 27
To Balance c/d 30 Provided)
55 55

Dr. Plant and Machinery A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 310 By Assets Disposal A/C 20
To Bank A/C (New 85 (10000×100/50)
Purchase) By Balance c/d 375
395 395

Dr. Provision for Depreciation A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Assets Disposal A/C 10 By Balance b/d 35
(20000×50%) By Profit and Loss A/C 20
To Balance c/d 45 (Depreciation)
55 55

Dr. Assets Disposal A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Plant and Machinery A/C 20 By Bank A/C 12
To Profit and Loss A/C 02 By Provision for Depreciation 10
(Profit on sale) A/C
22 22
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Dr. Land and Building A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 520
To Bank A/C (New Purchase) 60 By Balance c/d 580
580 580

Dr. Furniture A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 70
To Bank A/C (New Purchase) 15 By Balance c/d 85
85 85

Dr. Investment A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 70
To Bank A/C (New Purchase) 20 By Balance c/d 90
90 90

Dr. Goodwill A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 60 By Profit and Loss A/C 15
(Written off)
By Balance c/d 45
60 60

Dr. Patent A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 30 By Profit and Loss A/C 05
(Written off)
By Balance c/d 25
30 30

Dr. Misc. Expenditure A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 23 By Profit and Loss A/C 08
(Written off)
By Balance c/d 15
23 23
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Dr. Adjusted Profit and Loss A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To General Reserve A/C (Transferred) 150 By Balance c/d 70
To discount on issue of Debenture 2.5
To Proposed Dividend 35
To Provision for Taxation 27
To depreciation on Plant and 20
Machinery
To Goodwill written off 15
To Patent written off 05
To Misc. Expenditure written off 08 By Fund From Operations 325.5
To Stock (Opening Stock Over Cast) 05
To Balance c/d 130
397.5 397.5

Or, Cash Flow Statement:

Cash Flow Statement of ABC ltd. for the year ended 31.12.2019

Particulars Amount(Rs.) Amount(Rs.) Amount(Rs.)

A. Cash Flow from Operating Activities
Operating Profit 325.5
Add: Decrease in Current Assets and Increase in Current Liabilities:
Bills Receivables (35 – 25) 10
Sundry Creditors (35 – 25) 10
Outstanding Interest on Debentures 03 23
348.5
Less: Increase in Current Assets and Decrease in Current Liabilities:
Stock [84 – {80 – (55×10/110)}] 09
Sundry Debtors (75 – 60) 15
Loan and Advances (40 – 38) 02
Bills Payables (20 – 17) 03 29
Cash Generated from Operations 319.5
Less: Tax Paid 25
Net Cash from Operating Activities 294.5
B. Cash Flow from Investing Activities
Sale of Plant and Machinery 12
Less: Purchase of Plant and Machinery 85
Purchase of Land and Building 60
Purchase of Furniture 15
Purchase of Investment 20 180
Net Cash used in Investing Activities (168)
C. Cash Flow from Financing Activities
Issue of Equity Shares 63
Issue of Debentures 47.5 110.5
Less: Redemption of Preference Shares 143
Term Loan Paid off 70
Dividend paid 25 238
 P a g e | 20

Net Cash used in Financing Activities (127.5)

Net Decrease in Cash Balance (1)
Add: Opening Cash Balance 27
Closing Cash Balance 26

Working Notes:

Dr. Equity Share Capital A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Share Premium A/C 13 By Balance b/d 350
(Premium on Issue) By General Reserve A/C 50
(Bonus Share)
To Balance c/d 450 By Bank A/C (New Issue) 63
463 463
Dr. Preference Share Capital A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Bank A/C (Redemption) 143 By Balance b/d 250
By Share Premium A/C 13
To Balance c/d 120 (Premium on Redemption)
(130×10%)
263 263

Dr. General Reserve A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Equity Share Capital A/C 50 By Balance b/d 150
(Bonus Share) [350×1/7]
To Capital Redemption 80 By Profit and Loss A/C 150
Reserve (Transferred to General
To Balance c/d 170 Reserve)
300 300

Dr. Share Premium A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Preference Share Capital 13 By Balance b/d 15
A/C (Premium on
Redemption) By Equity Share Capital A/C 13
To Balance c/d 15 (Premium on Issue)
28 28
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Dr. 15% Debenture A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

By Balance b/d 150
By Bank A/C (New Issue) 47.5
By Profit and Loss A/C 2.5
(Discount on Issue)
To Balance c/d 200 [50 – (50×5%)]
200 200

Dr. Term Loan A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Bank A/C (Paid off) 70 By Balance b/d 200
To Balance c/d 130
200 200

Dr. Proposed Dividend A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Unclaimed Dividend A/C 05 By Balance b/d 30
To Bank A/C (Dividend Paid) 25 By Profit and Loss A/C 35
To Balance c/d 35 (Dividend Declared)
65 65

Dr. Provision for Taxation A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Bank A/C (Tax Paid) 25 By Balance b/d 28
By Profit and Loss A/C (Tax 27
To Balance c/d 30 Provided)
55 55

Dr. Plant and Machinery A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 310 By Assets Disposal A/C 20
To Bank A/C (New 85 (10000×100/50)
Purchase) By Balance c/d 375
395 395
 P a g e | 22

Dr. Provision for Depreciation A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Assets Disposal A/C 10 By Balance b/d 35
(20000×50%) By Profit and Loss A/C 20
To Balance c/d 45 (Depreciation)
55 55

Dr. Assets Disposal A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Plant and Machinery A/C 20 By Bank A/C 12
To Profit and Loss A/C 02 By Provision for Depreciation 10
(Profit on sale) A/C
22 22

Dr. Land and Building A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 520
To Bank A/C (New Purchase) 60 By Balance c/d 580
580 580

Dr. Furniture A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 70
To Bank A/C (New Purchase) 15 By Balance c/d 85
85 85

Dr. Investment A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 70
To Bank A/C (New Purchase) 20 By Balance c/d 90
90 90

Dr. Goodwill A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 60 By Profit and Loss A/C 15
(Written off)
By Balance c/d 45
60 60
 P a g e | 23

Dr. Patent A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 30 By Profit and Loss A/C 05
(Written off)
By Balance c/d 25
30 30

Dr. Misc. Expenditure A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Balance b/d 23 By Profit and Loss A/C 08
(Written off)
By Balance c/d 15
23 23

Dr. Adjusted Profit and Loss A/C Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To General Reserve A/C (Transferred) 150 By Balance c/d 70
To discount on issue of Debenture 2.5
To Proposed Dividend 35
To Provision for Taxation 27
To depreciation on Plant and 20
Machinery
To Goodwill written off 15
To Patent written off 05
To Misc. Expenditure written off 08 By Operating Profit 325.5
To Stock (Opening Stock Over Cast) 05
To Balance c/d 130
397.5 397.5

8.

In the Books of Zodiac ltd.

Dr. Projected Profit & Loss Account for the year ended 31.03.2021 Cr.

Particulars Amount(Rs.) Particulars Amount(Rs.)

To Cost of Goods Sold: By Sales 10000000
Materials 3750000
Wages 3750000
To Gross Profit 2500000
10000000 10000000
To Sundry Expenses (Bal. Fig.) 1940000 By Gross Profit 2500000
To Net Profit 560000
2500000 2500000
 P a g e | 24

Projected Balance Sheet as on 31st March 2021

Liabilities Amount(Rs.) Assets Amount(Rs.)

Share Capital: Fixed Assets 8000000
Equity Share Capital 5600000 Current Assets:
Preference Share capital 2000000 Stock 1500000
Reserve & Surplus: Debtors 2500000
General Reserve 840000
Profit & Loss 560000
Secured Loans:
Debenture 100000
Current Liabilities:
Creditors 937500
Other Current Liabilities 1062500
12000000 12000000

Working Notes:

a) Sales

Gross Profit Ratio = 25% = ,

- " . "/
Or, 0
=,

Therefore, Sales = 4 GP = 4 × Rs.2500000 = Rs.10000000

b) Cost of Goods Sold

COGS = Sales – GP = Rs.10000000 – Rs.2500000 = Rs.7500000

Materials = 50% of Rs.7500000 = Rs.3750000

Wages = 50% of Rs.7500000 = Rs.3750000

c) Stock
1-0
Stock Turnover = =5
! 2 0 "34

5 .6&$$$$$
Or, =5
! 2 0 "34

Therefore, Average Stock = Rs.7500000/5 = Rs.1500000

As there is no hint regarding the levels of stock

So, Closing Stock = Rs.1500000

d) Debtors
 P a g e | 25

Debt Collection Period = 3 months

7 "
Or, × 12 = 3
0

Or, Debtors = th of Sales = × Rs. 10000000 = Rs, 2500000

, ,

e) Current Liabilities

Current Ratio = 2

Or, =2

0 "34?7 "
Or, =2 (there is no information about cash and bank balances)

0 "3@?7 " 5 . &$$$$$?5 .%&$$$$$

Or, Current Liabilities = = = Rs.2000000
% %

f) Creditors

Creditors Velocity = 3 months

A "
Or, . 3B "C D
× 12 = 3

Or, Creditors = %
× Purchase of Material =
%
× Rs. 3750000 = Rs.937500

g) Other Current Liabilities

Current Liabilities = Creditors + Other Current Liabilities

Or, Rs.2000000 = Rs.937500 + Other Current Liabilities

Or, Other Current Liabilities = Rs.2000000 – Rs.937500 = Rs.1062500

h) Fixed Assets
EF A ,
Proprietary Ratio = . = 80% or
"G HE A &

,
As out of Proprietary Fund Fixed Assets are & th

Therefore, Balance & th = Working Capital

Or, & th = CA – CL = (Stock + Debtors) – Current Liabilities = Rs.4000000 – Rs.2000000 =

. Rs.2000000

Therefore, Proprietary Fund = Rs.2000000×5 = Rs.10000000

Fixed Assets = 80% of Rs.10000000 = Rs.8000000

 P a g e | 26

i) Preference Share Capital, Debenture and Equity Share Holders’ Fund

Capital Gearing Ratio = 3:7

. C 3 0B G ?7
Or, KL HE A
= 3:7

Therefore, Preference Share Capital + Debenture = of Proprietary Fund

$

Or, of Rs.10000000 = Rs.3000000

$

6
And, Equity Funds = × Rs.10000000 = Rs.7000000
$

j) Preference Shares and Debentures

. C 3 0B G
= 2 [or, 2:1]
7

%
Therefore, Preference Share Capital = rd of (Preference Share Capital + Debenture)

%
= ×Rs.3000000 = Rs.2000000

And, Debenture ×Rs.3000000 = Rs.1000000

k) Equity Share Capital, Profit & Loss and General Reserve

Equity Shareholders’ Fund = Equity Share Capital + Profit & Loss + General Reserve

(Assuming that there is no Fictitious Assets)

- 5 ! ?. "/ & OPQQ
KL H G
= 1:4

Therefore, General Reserve + Profit & Loss = & th of Equity Funds = &×Rs.7000000 =
. Rs.1400000
,
And, Equity Share Capital = &×Rs.7000000 = Rs.5600000

Net Profit = 10% of Equity Capital = 10% of Rs.5600000 = Rs.560000

And, General Reserve = Rs.1400000 – Rs.560000 = Rs.840000