ACADEMY OF COMMERCE

FINANCIAL reporting & financial statement

analysis
SUGGESTION FOR 2024-25

✓ Fund flow / Cash flow Statement

Group A 5M X 3Q = 15 marks ✓ IND AS
✓ Ratio
✓ IND AS
Group B 10M X 2Q = 20 marks
✓ Comparative / Common size income statement
✓ Holding company
Group C 15M X 3Q = 45 marks ✓ Cash flow/ Fund flow Statement
✓ Ratio analysis

❖ HOLDING COMPANY:
 Numerical Problems:
1. The statement of assets and liabilities of H. Ltd. and its subsidiary S Ltd as at 31.03.2017 stood
as follows:
Particulars H. Ltd. ( Rs.) S. Ltd (Rs.)
I. EQUITY AND LIABILITIES
1. Shareholders' funds:
(a) Equity Share Capital (Rs. 10 each fully paid) 5,00,000 1,50,000
(b) Reserves and surplus:
(i) General Reserve 2,00,000 1,30,000
(ii) Profit & Loss Balance 2,50,000 1,00,000
2. Non-current liabilities – –
3. Current liabilities:
(a) Trade Payable 2,80,000 1,70,000
Total 12,30,000 5,50,000

II. ASSETS
1. Non-current assets
(a) Property, Plant and Equipment
(i) Land and Buildings 5,00,000 2,20,000
(ii) Plant & Machinery 2,00,000 1,00,000
(b) Non-current investments
(i) Investment in shares (including shares in S. Ltd.) 1,80,000 –
2. Current assets
(a) Inventories 1,60,000 1,40,000
(b) Trade receivables 1,60,000 80,000
(c) Cash and cash equivalents 30,000 10,000
Total 12,30,000 5,50,000
The following information is also available:
• H. Ltd. acquired 12,000 Equity Shares of S. Ltd. on 01.07.16 at a cost of Rs. 1,50,000 and
immediately after acquisition. H. Ltd. received dividend on equity shares @ 20% for the
year 2015-16. H. Ltd. credited its share of divided to Profit & Loss A/c.
• On 01.04.2016, balance of General Reserve of S. Ltd. was Rs. 70,000 and the balance of
Profit & Loss was Rs. 40,000.

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• Debtors of H. Ltd. include Rs. 20,000 for goods sold to S. Ltd. at cost plus 25%; half the
goods are still in stock. S. Ltd. remitted Rs. 5,000 to H. Ltd which H. Ltd. received on
11.04.2017.
You are required to prepare the Consolidated Balance Sheet of H. Ltd. with its subsidiary S.
Ltd, as at 31.03.2017.

Answer: Consolidated Balance Sheet Total = Rs. 16,13,000.

2. The Standalone Balance Sheet of H Ltd. and S Ltd. as at 31.03.2021 are given below:
Particulars H. Ltd. ( Rs.) S. Ltd (Rs.)
I. EQUITY AND LIABILITIES
1. Shareholders' funds:
(a) Share Capital
(i) Equity Share Capital (shares of Rs. 10 each) 2,80,000 1,00,000
(b) Reserves and surplus:
(i) General Reserve 40,000 30,000
(ii) Balance of Profit & Loss (Cr.) 60,000 35,000
2. Current liabilities:
(a) Trade Creditors 50,000 20,000
(b) Bills Payable 10,000 6,000
Total 4,40,000 1,91,000
II. ASSETS
1. Non-current assets
(a) Property, Plant and Equipment
(i) Land and Buildings 1,50,000 60,000
(ii) Plant & Machinery 1,20,000 90,000
(b) Non-current investments – 6,000 shares of S Ltd. 75,000 –
2. Current assets
(a) Inventories
(i) Stock-in-Trade 60,000 11,000
(b) Trade Receivables
(i) Debtors 15,000 20,000
(c) Cash and cash equivalents
(i) Cash & Bank 20,000 10,000
Total 4,40,000 1,91,000
Additional Information:
a) H Ltd. acquired the shares of S Ltd. on 01.04.2020 S Ltd. had the following balances on
the date of acquisition: (i) Profit & Loss Account Rs. 25,000; (ii) General Reserve Rs.
20,000.
b) On 15.08.2020 S Ltd. paid dividend for the year 2019-2020 @ 10% and H Ltd. credited
its share of dividend to P/L A/c.
c) S Ltd. sold goods of Rs. 25,000 to H Ltd. at a profit of 20% on sales. The goods are still
lying unsold.
d) Sundry Creditors of H Ltd. include Rs. 10,000 payable to S Ltd.
Prepare Consolidated Balance on 31.03.2021.

Answer: Consolidated Balance Sheet Total = Rs. 5,41,000.

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3. The statement of assets and liability of H Ltd. and its subsidiary S Ltd. as on 31.3.2022 are as
follows:
Particulars H Ltd. S Ltd.
Equity and Liabilities: 10,00,000 3,00,000
Equity Share Capital (Rs. 10) 4,00,000 2,60,000
General Reserve 5,00,000 2,00,000
Balance in Statement of Profit & Loss (Cr.) 5,60,000 3,40,000
Trade Payables (creditors) 24,60,000 11,00,000

Assets: 10,00,000 4,40,000

Land and Building 4,00,000 2,00,000
Plant and Machinery 3,00,000 –
Investment in S Ltd. 3,80,000 2,80,000
Inventories 3,20,000 1,60,000
Trade Receivables (debtors) 60,000 20,000
Cash and cash equivalents 24,60,000 11,00,000
Additional information:
a. H Ltd. acquired 24,000 equity shares of S Ltd. on 01.04.2021 at a cost of Rs. 3,00,000 and
immediately after acquisition, H Ltd. received dividend on equity shares @ 20% for the
year 2020-21. H Ltd. credited its share of dividend to Profit and Loss A/c
b. On 01.04.2021 the balance of General Reserve was Rs. 1,40,000 and the balance of Profit
& Loss was Rs. 80,000.
c. Debtors of H Ltd. include Rs. 40,000 for goods sold to S Ltd. at cost plus 25%, half of the
goods are still in stock.
You are required to prepare the Consolidated Balance Sheet of H Ltd. with its subsidiary S
Ltd.as at 31.03.2022.

Answer: Consolidated Balance Sheet Total = Rs. 32,16,000.

Particulars Notes H Ltd. S Ltd.

No.

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III. EQUITY AND LIABILITIES

3. Shareholders' funds:
(c) Share Capital 1 11,00,000 5,40,000
(d) Reserves and surplus: 2 4,80,000 3,00,000
4. Share application money pending allotment – –
5. Non-current Liabilities – –
6. Current liabilities:
(c) Trade Payable
3 2,20,000 1,60,000
Total 18,00,000 10,00,000
IV. ASSETS
3. Non-current assets
(c) Property, Plant and Equipment 4 8,20,000 5,40,000
(d) Intangible Assets
(iii) Goodwill 80,000 60,000
(e) Non-current investments 5 4,80,000 –
4. Current assets
(d) Inventories 2,00,000 1,80,000
(e) Trade Receivables
(ii) Debtors 40,000 1,50,000
(f) Cash and cash equivalents 1,80,000 60,000
(g) Other Current Assets
(i) Preliminary Expenses – 10,000
Total 18,00,000 10,00,000
4. The Balance Sheet of H Ltd. and S Ltd. and the Notes to Accounts as at 31.3.19, are as under:
Notes to the Financial Statement:
Particulars H Ltd. S Ltd.
1. Share Capital:
Authorised ? ?
Issues, Subscribed and Paid up
(a) Preference Share Capital of Rs. 100 each 3,00,000 1,40,000
(b) Equity Share Capital of Rs. 100 each 8,00,000 4,00,000
11,00,000 5,40,000
2. Reserve and Surplus:
(a) General Reserve as at 31.3.2018 2,00,000 1,20,000
(b) Balance in Statement of Profit & Loss 2,80,000 1,80,000
4,80,000 3,00,000
3. Trade Payables
(a) Creditors 2,20,000 1,20,000
(b) Bills Payable – 40,000
2,20,000 1,60,000
4. Property, Plant and Equipment
(a) Land and Buildings 5,00,000 3,60,000
(b) Plant & Machinery 3,20,000 1,80,000
8,20,000 5,40,000
5. Non-current Investments
(a) 3,000 shares in S Ltd. purchased on 30.09.2018 4,80,000 –
Further information:
a. Balance in Statement of Profit and Loss Account of S. Ltd. showed a credit balance of Rs.
1,00,000 on 1.4.2018.

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b. A dividend of 15% was paid by S. Ltd. in October 2018 for the year 2017-18 which was
credited to Statement of Profit and Loss Account of H. Ltd.
c. Creditors of S. Ltd. includes Rs. 40,000 for goods supplied by H. Ltd. Also included in the
stock of S. Ltd. are goods valued Rs. 16,000 which were supplied by H. Ltd. at a profit of
25% on sales.
d. Plant and Machinery were revalued at Rs. 3,00,000 on acquisition date which stood in
the books Rs. 2,00,000 on 1.4.2018.
e. There is contingent liability of Rs. 2,000 for pending suit in the books of H Ltd.
Preparer consolidated balance sheet of H. Ltd with its subsidiary S Ltd. as on 31.3.2019.

Answer: Consolidated Balance Sheet Total = Rs. 23,71,000

5. H. Ltd. acquired 1,200 equity shares in S Ltd. on 01.04.2017. The statement of assets and
liabilities of H Ltd. and its subsidiary S Ltd. as on 31.3.2018 stood as follows:
Particulars H Ltd. S Ltd.
I. EQUITY AND LIABILITIES
1. Shareholders' funds:
(a) Share Capital
(i) Preference Share Capital (Rs. 10 fully paid) 1,00,000 –
(ii) Equity Share Capital (Rs. 10 fully paid) 5,00,000 1,50,000
(b) Reserves and surplus:
(i) General Reserve 3,40,000 6,000
(ii) Profit & Loss Balance 3,60,000 1,08,000
2. Non-current liabilities
(a) 6% Debentures (Secured) – 24,000
3. Current liabilities:
(a) Trade Payable 1,00,000 44,300
Total 14,00,000 3,32,300

II. ASSETS
1. Non-current assets
(a) Property, Plant and Equipment
(i) Land and Buildings 3,56,000 70,000
(ii) Plant & Machinery 1,40,000 91,300
(iii) Furniture & Fixture 3,76,000 40,000
(b) Non-current investments
(i) Investment in S Ltd. (1,200 shares of S. Ltd.) 1,80,000 –
2. Current assets
(a) Inventories 1,36,000 50,600
(b) Trade receivables 2,00,000 70,000
(c) Cash and cash equivalents 12,000 10,400
Total 14, 00,000 3,32,300
The other information given are:
a. On 01.04.2017 P & L of S Ltd. stood at Rs. 77,500 and General Reserve at Rs. 3,000.
b. H Ltd. revalued Plant and machinery of S Ltd., at the time of purchase of shares by Rs.
20,000 more than its book value (Ignore Depreciation).
c. Trade receivables of S Ltd., include Rs. 24,000 for sales to H Ltd., on which S Ltd. made a
profit of Rs. 6,000.
d. Inventory of H Ltd., includes Rs. 8,000 of stock purchased from S Ltd.

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e. S Ltd. made a Bonus issue during the year out of pre-acquisition profits for Rs. 60,000 not
recorded in the books.
You are required to prepare the Consolidated Balance Sheet of H Ltd. with its subsidiary S Ltd.
as at 31.03.2018.

Answer: Consolidated Balance Sheet Total = Rs. 15,46,300

6. The following are the statements of assets and liabilities of Ambani Ltd. and Adani Ltd. as on
31.03.2019:
Note No. Ambani Ltd. Adani Ltd.
Equity and Liabilities:
1. Shareholders' Fund
(a) Share Capital 30,00,000 10,00,000
(b) Reserve and Surplus 1 35,00,000 7,60,000

2. Current Liabilities:
Trade Payables 2 3,00,000 3,22,000

Total 68,00,000 20,82,000

Assets :
1. Non-current Assets:
(a) Property, Plant and Equipment 3 26,60,000 12,62,000
(b) Non-current Investments 4 18,60,000 70,000

2. Current Assets
(a) Inventories 6,80,000 4,04,000
(b) Trade Receivables (Debtors) 5 12,00,000 3,16,000
(c) Cash and Cash Equivalents (Cash at Bank) 4,00,000 30,000
Total 68,00,000 20,82,000

Notes to accounts:
Ambani Ltd. Rs. Adani Ltd. Rs.
1. Reserve and Surplus :
(a) Reserve 19,00,000 40,000
(b) Balance in the statement of profit and loss 16,00,000 7,20,000
35,00,000 7,60,000
2. Trade Payables :
(a) Current A/c with Adani Ltd. 36,000 –
(b) Sundry Creditors 2,64,000 3,22,000
3,00,000 3,22,000
3. Property, Plant and Equipment:
(a) Land and Buildings 20,60,000 7,20,000
(b) Plant & Machinery 6,00,000 5,42,000
2,60,000 12,62,000
4. Non-current Investments :
(a) Investment in shares of Adani Ltd. 16,00,000 –
(b) Other Investments 2,60,000 70,000
18,60,000 70,00,000
5. Trade Receivables :

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(a) Sundry Debtors 12,00,000 2,76,000

(b) Current A/c with Ambani Ltd. – 40,000
12,00, 000 3,16,000
Other Particulars:
a. Ambani Ltd. acquired 80% shares of Adani Ltd. on 1.7.18. On 1.4.2018, the Reserve and
Statement of Profit and Loss of Adani Ltd. were Rs. 20,000 and Rs. 4,00,000 respectively.
b. Land and Buildings standing in the books of Adani Ltd. at Rs. 8,00,000 on 1.4.2018 were
revalued at Rs. 7,60,000 at the date of acquisition, but it was not passed in the books.
c. Adani Ltd. declared and paid 20% dividend for the year 2017-18 in July 2018 and Ambani
Ltd. credited the entire amount of dividend received from Adani Ltd. to its statement of
Profit and Loss.
d. Stock of Ambani Ltd. includes Rs. 60,000 goods purchased from Adani Ltd.
e. Sundry Creditors of Ambani Ltd. includes Rs. 1,20,000 purchased from Adani Ltd. on which
Adani Ltd. made a profit of Rs. 30,000
f. On 31.3.2019, Ambani Ltd. remitted a cheque Rs. 4,000 on Current A/c to Adani Ltd.
From the above information prepare a Consolidated Balance Sheet of Ambani Ltd. and its
subsidiary Adani Ltd. as on 31.03.2019.

Answer: Consolidated Balance Sheet Total = Rs. 74,66,000

7. The Balance Sheet of H Ltd. and its subsidiary S Ltd. as on 31st March, 2019 are as follows:
Particulars Note H. Ltd. ( Rs.) S. Ltd (Rs.)
No.
I. EQUITY AND LIABILITIES
1. Shareholders' funds:
(a) Share Capital 1 10,00,000 8,00,000
(b) Reserves and surplus 2 6,00,000 5,00,000
2. Share application money pending allotment – –
3. Non-current liabilities – –
4. Current liabilities: 2,00,000 2,00,000
Total 18,00,000 15,00,000

II. ASSETS
1. Non-current assets
(a) Property, Plant and Equipment 3 5,00,000 4,00,000
(b) Non-current investments 5,00,000 –
2. Current assets 8,00,000 11,00,000
Total 18,00,000 15,00,000
Notes to the Financial Statement:
Particulars H Ltd. S Ltd.
1. Share Capital:
Authorised ? ?
Issues, Subscribed and Paid up
(a) Equity Share Capital of Rs. 100 each 10,00,000 8,00,000

2. Reserve and Surplus: 2,00,000 2,00,000

(a) General Reserve 4,00,000 3,00,000
(b) Balance in Statement of Profit & Loss 6,00,000 5,00,000

3. Non-current Investments

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(a) Investments in 3,000 Equity Shares in S Ltd. 5,00,000 –

Further Information:
a. H Ltd. acquires 3,000 shares in S Ltd. on 1st April 2018, when the Reserve and Surplus of
S Ltd. was as under: (a) General reserve Rs. 5,00,000; (b) Statement of Profit and Loss
(Cr.) Rs. 2,00,000.
b. On 1st October, 2018, S Ltd. issued three fully paid up share for every five shares held as
bonus out of pre-acquisition Reserve.
c. On 30.6.2018, S Ltd. declared a dividend of 20% out of its pre-acquisition profits and H
Ltd. credited this dividend received to its Statement of Profit and Loss.
d. S Ltd. owed H Ltd. on 31.03.19 Rs. 1,00,000 for purchase of stock from H Ltd. The entire
stock is held by S Ltd. on 31.3.2019. H Ltd. made a profit of 25% on cost.
e. H Ltd. transferred for cash payment a Machine to S Ltd. for Rs. 80,000. The book value
of the Machine to H Ltd. was Rs. 60,000.
Prepare Consolidated Balance Sheet on 31.3.2019. Depreciation on Machinery to be ignored.

Answer: Consolidated Balance Sheet Total = Rs. 26,60,000.

8. The Balance Sheet of Honey Ltd. and its subsidiary Sour Ltd. as on 31.03.2019 stood as
follows:
Honey Ltd. (Rs. Sour Ltd. (Rs. In
In lakh) lakh)
EQUITY AND LIABILITY:
1. Shareholders fund :
a. Equity shares of Rs. 10 each fully paid 12,000 4,800
b. Reserve and surplus:
General Reserve 2,784 1380
Profit and Loss account 2,715 1,620
2. Current liabilities:
Provision for taxation 855 394
Proposed dividend 1,200 -
Bills payable 372 160
Sundry creditors 1,461 854
Total 21,387 9,208

ASSETS
1. Non –Current Assets
a. Property, Plant and Equipment 2,718 -
Land & Buildings 4,905 4,900
Plant & Machinery 1,845 586
Furniture & Fittings
b. Non-current investment (in Eq. Sh. of Sour Ltd) 3,000 -

2. Current Assets :
Stock 3,949 1,956
Debtors 2,600 1,363
Cash & cash equivalents 1,490 204
Bills receivable 360 199
Sundry Advances 520 -
Total 21,387 9,208
The following information are also provided:

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a. Honey Ltd. purchased 180 lakhs share in Sour Ltd. on 1st April, 2018 when the balances in
General Reserve and Profit & Loss Account of Sour Ltd. stood at Rs. 3,000 lakhs Rs. 1,200
Lakhs respectively.
b. On 4Th July 2018 Sour Ltd. declared a dividend @ 20% for the year ended 31.03.2018.
Honey Ltd. credited dividend received by it to its Profit & Loss Account.
c. On 1st January, 2019 Sour Ltd. issued 3 fully paid up shares for every 5 shares held as bonus
shares out of balances to its General Reserve as on 31.03.2018.
d. On 31.03.2019 all Bills payable in Sour Ltd.’s Balance sheet were acceptances in favour of
Honey Ltd. But on the date, Honey Ltd. held only Rs. 45 Lakh of these acceptance in hands,
the rest having been endorsed in favour of its creditors.
e. On 31.03.2019 Sour Ltd.’s stock included goods which it had purchased for Rs. 100 Lakhs
from Honey Ltd. which a profit @ 25% on cost.
Prepare a consolidated Balance Sheet of Honey Ltd. and Its subsidiary Sour Ltd. as at 31st
March, 2019.

Answer: Consolidated Balance Sheet Total = Rs. 27,530.

❖ FUND FLOW STATEMENT:

 Theory:
1) Compare Fund Flow Statement with Balance Sheet.
2) Differentiate between Fund Flow Statement and Income Statement
3) Can depreciation be source of Fund? – Explain.
4) State the limitations of Fund Flow Statement.

 Numerical Problems: [Small Type]

1. From the following information compute Fund from Operation:
Net Profit Rs. 25,000
Net Profit is calculated after considering the following items:
Depreciation Rs. 20,000
Loss on Sale of Assets Rs. 5,000
Inform from Investment Rs. 2,500

Answer: Rs. 47,500.

2. The statement of change in working capital of K Ltd. for the year ended 31st December 2005
showed the following information:
on 31.12.2005
Particulars Effect on Working Capital (Rs.)
Rs.
Debtors 40,000 15,000 Increase
Stock 60,000 NIL -
Bills Receivable 55,000 10,000 Decrease
Creditors 47,000 12,000 Increase
Bills Payable 16,000 5,000 Decrease
Calculate the value of the aforesaid current assets and current liabilities on 31.12.2004

Answer:
Debtors = Rs. 25,000; Stock = Rs. 60,000; Bills Receivable = Rs. 65,000.

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Creditors = Rs. 59,000; Bills payable = Rs. 11,000.

3. Find out the funds from operation from the following data:
Opening balance of Profit & Loss A/c Rs. 60,000
Closing balance of Profit & Loss A/c Rs. 30,000
Written down value of the motor car Rs. 14,000 which was sold for Rs. 18,000
Purchase of machinery Rs. 20,000
Interim dividend paid Rs. 20,000
Proposed dividend Rs. 30,000
Depreciation Rs. 50,000
Goodwill written-off Rs. 1,000
Loss on Sale of Machinery Rs. 3,000
Transfer to Reserve Rs. 5,000
Sinking Fund Rs. 10,000
Salaries paid Rs. 3,000
Tax paid Rs. 5,000

Answer: Rs. 90,000.

4. From the following particulars calculate Fund from Operation:

Rs.
P&L A/c: as on 01.04.18 1,60,000
as on 31.03.19 2,00,000
Transaction during the year:
Transfer to Revenue Reserve 40,000
Depreciation on Fixed Assets 16,000
Underwriting commission written off 8,000
Interest Received 4,000
Interim Dividend paid 16,000
Sale of Old Machinery (Book Value Rs. 48,000) 56,000

Answer: Rs. 1,08,000.

5. Prepare a Statement of Changes in Working Capital from the following Balance Sheet of A &
Co.
Liabilities Rs. Rs. Assets Rs. Rs.
Capital 8,00,000 8,00,000 Fixed Assets 8,00,000 8,50,000
Reserve & Surplus 3,00,000 3,25,000 Long-term 2,00,000 1,50,000
Long-term Loan 2,00,000 1,50,000 Investments 2,10,000 2,28,000
Sundry Creditors 55,000 50,000 Stock 1,85,000 1,75,000
Trade Payable 30,000 28,000 Debtors 35,000 30,000
Provision for 20,000 25,000 Trade Receivables 45,000 30,000
Taxation 70,000 85,000 Cash & Cash
Bank Overdraft 14,75,000 14,63,000 Equivalent 14,75,000 14,63,000

Answer: Decreases in Working Capital = Rs. 25,000.

 Numerical Problems: [Big Type]

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1. Given below is the summery of assets and liabilities of Speed Ltd. as at 31.03.2019 and
31.03.2020.
31.03.2019 31.03.2020
Rs. Rs.
Liabilities and Equities
Equity Share Capital ( Rs.10 each fully paid) 4,00,000 4,80,000
Balance of Statement of Profit and Loss 3,00,000 3,90,000
Long-term Borrowing 3,80,000 3,40,000
Trade Payables 1,70,000 1,25,000
Provision for Tax 50,000 55,000
TOTAL 13,00,000 13,90,000
Assets
Plant, Property and Equipment (Tangible) 7,00,000 8,00,000
Stock in Trade 2,20,000 1,40,000
Trade Receivables 2,30,000 2,80,000
Cash and Bank 1,50,000 1,70,000
TOTAL 13,00,000 13,90,000
Additional information:
(a) Tangible Assets costing Rs. 1,00,000 (accumulated depreciation Rs. 70,000 was sold for
Rs. 42,000 and the profit or loss transferred to Profit and Loss A/c. depreciation charged
during the year on tangible assets was Rs. 1,10,000).
(b) Income tax and Dividend paid during the year were Rs. 58, 000 and Rs. 66, 000
respectively.
You are required to prepare the Fund Flow Statement of Speed Ltd. for the year ended
31.03.2020.

Answer: Fund from operation = Rs. 3,17,000

2. Prepare a Fund Flow Statement of Y Ltd. from the following statement of assets and liabilities
after taking into consideration the additional information.
Particulars 31.03.2021 (Rs.) 31.03.2022 (Rs.)
I. EQUITY AND LIABILITIES
Share Capital (Rs. 10 each) 12,00,000 16,00,000
Capital Reserve – 40,000
Balance in Statement of Profit and Loss 8,40,000 10,60,000
Debentures 8,00,000 5,60,000
Sundry Creditors 4,80,000 5,36,000
Provision for Tax 4,80,000 4,84,000
TOTAL 38,00,000 42,80,000
II. ASSETS
Property, Plant and Equipment 22,80,000 26,40,000
Trade Investments 4,00,000 3,20,000
Current Assets including Inventories 11,20,000 13,20,000
TOTAL 38,00,000 42,80,000
Additional information:
i. Sold one machine for Rs. 1,00,000, the cost of the machine was Rs. 2,56,000 and the
depreciation provided for it amounted to Rs. 1,40,000.
ii. Provided Rs. 3,80,000 on depreciation.
iii. Redeemed 30% debentures @ Rs. 103.

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iv. Sold trade investments at profit and the profit was credited to capital reserve.
v. Decided to value the stock at cost, whereas the previous practice was to value the
stock at cost less 10%. The stock according to books on 31.03.2021 was Rs. 2,16,000,
stock on 31.03.2022 Rs. 3,00,000 was correctly valued at cost.

Answer:
Fund Flow Statement Total = Rs. 17,03,200; Fund from Operation = Rs. 10,83,200;
Increase in Working Capital = Rs. 1,20,000

3. Following are the liabilities and assets of Andhra Ltd. as on 31.03.2017 and 31.03.2018:
31.03.17 (Rs.) 31.03.18 (Rs.)
I. Equity and Liabilities:
1. Shareholders’ Fund:
a) Equity Share of 10 each fully paid 8,00,000 10,00,000
b) Reserve and Surplus:
Securities Premium 1,00,000 1,20,000
General Reserve 3,60,000 4,40,000
Profit and Loss balance 2,20,000 2,96,000
2. Non-current Liabilities:
Bank Loan 4,20,000 4,60,000
3. Current Liabilities:
Trade Payables 1,66,000 2,16,000
Provision for tax 2,00,000 2,10,000
TOTAL 22,66,000 27,42,000
II. Assets:
1. Non-current Assets:
a) Property, Plant and Equipment 17,00,000 20,60,000
b) Non-current Investment 96,000 1,24,000
2. Current Assets:
Inventories 2,40,000 2,80,000
Trade Receivables 1,60,000 1,90,000
Cash & Cash Equivalents 70,000 88,000
TOTAL 22,66,000 27,42,000
Following further particulars for the year 2017-18 are also given:
i. Dividend paid during the year Rs. 75,000.
ii. The company sold part of the fixed asset for Rs. 24,000 (W.D.V. Rs. 20,000).
Depreciation charged on fixed assets during the year Rs. 1,40,000.
iii. Investment costing Rs. 16,000 were sold during the year for Rs. 19,000.
iv. Interest on Investment received Rs. 7,000 and credited to profit & Loss Account.
v. Interest accrued and paid during the year on Bank Loan Rs. 24,000.
vi. Income tax provided during the year Rs. 1,98,000.
You are required to prepare:
a) The schedule of changes in working capital from 31.03.2017 to 31.03.2018, and
b) The Fund Flow Statement of Andhra Ltd. for the year ended 31.03.2018.

Answer:
Fund Flow Statement Total = Rs. 8,89,000
Fund from Operation = Rs. 5,79,000

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Increase in Working Capital = Rs. 38,000

4. The Balance Sheet of Boom Ltd. as 31st March 2018 and 2019 are given below:
Sl. 31.3.2018 31.3.2019
Particulars
No. (Rs.) (Rs.)
I. Equity and Liabilities:
1. Shareholders’ Fund
(a) Share Capital 4,00,000 5,00,000
(b) Reserve and Surplus
(i) Capital Reserve – 20,000
(ii) General Reserve 1,80,000 2,10,000
(iii) Balance in Statement of Profit & Loss 70,000 90,000
2. Non-current Liabilities
(a) Long-term Borrowings
(i) 10% Debentures 3,00,000 2,00,000
3. Current Liabilities
(a) Trade Payables 1,30,000 1,20,000
(b) Other Current Liabilities
(i) Debenture Interest Unpaid – 5,000
(ii) Dividend Unpaid 4,000 2,000
(c) Short-term Provision
(i) Provision for Income Tax 80,000 60,000
TOTAL 11,64,000 12,07,000
II. Assets:
1. Non-current Assets
(a) Property, Plant & Equipment at cost 10,00,000 10,00,000
Less: Depreciation (2,60,000) (3,10,000)
(b) Non-Current Investment 1,10,000 90,000
2. Current Assets
(a) Inventories 1,62,000 1,25,000
(b) Trade Receivables 1,22,000 2,82,000
(c) Other Current Assets
(i) Debenture Discount 30,000 20,000
TOTAL 11,64,000 12,07,000
During the year ended 31st March, 2019 the company:
a) Sold one machine for Rs. 40,000 the cost of which was Rs. 80,000 and the depreciation
provided on it was Rs. 30,000.
b) Provide Rs. 1,00,000 as depreciation.
c) Redeem the debentures at Rs. 105.
d) Sold some investments at a profit which was credited to Capital Reserve.
e) Decided to written off the Property, Plant & Equipment (fully depreciated) costing Rs.
20,000.
f) Dividend proposed for 2017-18 was Rs. 48,000 out of which Rs. 1,000 remained unpaid.
Proposed dividend for 2018-19 was Rs. 60,000.
g) Interest on Debenture for 2018-19 was Rs. 30,000.
h) Decided to value opening stock at cost which was valued at cost less 10%. The closing
stock was correctly valued at cost.
Prepare statement of sources and application of funds for the year ended 31.03.2019
showing changes in working capital.

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Answer:
Fund Flow Statement Total = Rs. 4,75,000; Fund from operation = Rs. 2,95,000;
Increase in Working Capital = Rs. 1,15,000

5. The Balance Sheet of XY Ltd. as on 31st December 2014 and 2015 are as under:
31.12.14 (Rs.) 31.12.15 (Rs.)
I. Equity and Liabilities:
1. Shareholders’ Fund:
a) Equity Share Capital 3,00,000 5,00,000
10% Redeemable Preference Shares 3,00,000 2,00,000
b) Reserve and Surplus
General Reserve 40,000 60,000
Capital Reserve – 50,000
Profit and Loss Balance 36,000 54,000
2. Non-Current Liabilities – –
3. Current Liabilities:
Trade Payable 88,000 1,30,000
Provision for Taxation 56,000 64,000
Proposed Dividend 54,000 66,000
Total 8,74,000 11,24,000
II. Assets:
1. Non-current Assets:
i. Fixed Assets:
a) Tangible:
Land and Building 2,00,000 1,50,000
Plant and Machinery 1,80,000 3,82,000
b) Intangible:
Goodwill 1,20,000 94,000
ii. Nom-current Investment 20,000 70,000
2. Current Assets:
Inventory 1,70,000 1,56,000
Trade Receivables 1,50,000 2,16,000
Cash and cash equivalent 34,000 56,000
Total 8,74,000 11,24,000
The following further particulars are given.
i. In 2015, Rs. 36,000 depreciation has been written off Plant and Machinery and no
depreciation has been charged on Land and Building.
ii. A piece of land has been sold out and profit on such sale has been transferred to
Capital Reserve.
iii. A plant was sold for Rs. 24,000 (W.D.V. Rs. 30,000).
iv. Dividend received amounted to Rs. 4,200 which included pre-acquisition dividend of
Rs. 1,200.
v. An interim dividend of Rs. 20,000 has been paid in 2015.
You are required to prepare:
a) Statement of Sources and Application of Funds, and
b) Statement of Changes in Working Capital for the year 2015.

Answer:

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Fund Flow Statement Total = Rs. 6,11,200; Fund from Operation = Rs. 2,83,000;
Increase in Working Capital = Rs. 32,000

❖ CASH FLOW STATEMENT:

 Theory:
1) What are the two methods of preparing Cash Flow Statement? – Explain.
2) Discuss the uses of Cash Flow Statement. What are the limitations of Cash Flow
Statement?

 Numerical Problems: [Small Type]

1. Identify the following as belonging to (i) Operating Activities; (ii) Investing Activities; (iii)
Financing Activities and (iv) Cash and Cash Equivalents.
(a) Cash sales of goods → Operating
(b) Cash received from service rendered → Operating
(c) Interest on Debentures → Financing
(d) Purchase of shares → Investing
(e) Income tax paid → Operating
(f) Marketable Securities → Cash and Cash Equivalents
(g) Income tax paid on gain on sale of assets → Investing
(h) Redemption of debenture → Financing
(i) Dividend paid → Financing
(j) Dividend received → Investing

2. You are given the following particulars relating to the year ended 31.3.2019:
(a) Total Sales Rs. 4,23,000
(b) Cost of goods sold Rs. 2,12,000
(c) Expenses for the year Rs. 35,000
(d) Position of current assets and liabilities:
31.3.2018 31.3.2019
(Rs.) (Rs.)
Debtors 1,24,000 89,000
Inventory 1,03,000 1,19,000
Prepaid Expenses 21,000 15,000
Creditors 94,000 1,65,000
Ascertain cash from operation for the year 2018-19.

Answer: Rs. 2,72,000.

3. Calculate cash from operation before tax from the information given below:
Amount (Rs.) Amount (Rs.)
Sales 80,000
Less: Cost of Goods Sold 30,000
Cash Operating Expenses 14,000
Depreciation 10,000 54,000
Profit Before Tax 26,000
Balance relating to current items are:
Opening (Rs.) Closing (Rs.)

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Debtors 12,000 10,000

Inventory 11,000 14,000
Creditor 9,000 7,000

Answer: Rs. 33,000.

4. With the help of the following information prepare a Cash Flow Statement as per AS 3 for the
year 2015-16: Rs.
Opening Cash and Cash Equivalents 20,000
Net Profit after depreciation 1,75,000
Profit on Sale of Machinery 10,000
Increase in Current Assets 1,25,000
Increase in Current Liabilities 1,50,000
Sale in Machine 1,70,000
Purchase of Machine 2,50,000
Payment of Bank Loan 1,60,000
Redemption of Debenture 1,00,000

Answer:
Cash from operating activities = Rs. 1,90,000;
Cash from investing activities = Rs. (80,000);
Cash from financing activities = Rs. (2,60,000).

 Numerical Problems: [Big Type]

1. Balance Sheet of Pixel Ltd. as at 31.03.2021 and 31.03.2022 were as follows:
Notes 31.03.2021 31.03.2022
Particulars
No. (Rs.) (Rs.)
I. EQUITY AND LIABILITIES
1. Shareholders Fund
(a) Equity Share Capital (Shares of Rs. 100 each) 40,00,000 50,00,000
(b) Reserve and Surplus 15,00,000 21,00,000
(Balance in Statement of Profit and Loss)
2. Non-Current Liabilities
(a) Long term Borrowing – Term Loan 15,00,000 10,00,000
3. Current Liabilities
(a) Trade Payables 8,00,000 5,00,000
(b) Provision for Tax 2,80,000 3,50,000
TOTAL 80,80,000 89,50,000
II. ASSETS
1. Non-Current Assets
(a) Property, Plant and Equipment 45,00,000 52,00,000
2. Current Assets
(a) Inventories 10,00,000 12,00,000
(b) Trade Receivables 23,00,000 19,00,000
(c) Cash and Cash Equivalents 2,80,000 6,50,000
TOTAL 80,80,000 89,50,000
Additional Information:
(a) During the year the company paid income tax Rs. 3,20,000, dividend Rs. 4,00,000 and
repayment of term loan of Rs. 5,000,000. The company also paid interest on term loan for
the year 2021-22 Rs. 1,80,000.

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(b) Depreciation charged on property, plant and equipment during the year is Rs. 5,00,000.
Prepare a Cash Flow Statement as per AS-3 for the year ended 31.03.2022.

Answer:
Cash from operating activities = Rs. 16,50,000;
Cash from investing activities = Rs. (12,00,000);
Cash from financing activities = Rs. (80,000).

2. Following are the liabilities and assets of Nico Ltd. as on 31.03.2017 and 31.03.2018:
31.3.17 (Rs.) 31.3.18 (Rs.)
I. Equity and Liability:
1. Shareholders’ Fund:
(a) Equity Share of Rs. 10 each fully paid 4,00,000 5,00,000
(b) Reserves and Surplus:
Securities Premium 50,000 60,000
General Reserve 1,80,000 2,20,000
Profit and Loss balance 1,10,000 1,48,000
2. Non-current Liabilities:
Bank Loan 2,10,000 2,40,000
3. Current Liabilities:
Trade Payable 83,000 1,08,000
Provision for tax 1,00,000 1,05,000
Total 11,33,000 13,81,000
II. Assets:
1. Non-current Assets:
Property , Plant and Equipment 8,98,000 10,92,000
2. Current Assets
Inventories 1,20,000 1,40,000
Trade Receivables 80,000 95,000
Cash & Cash Equivalents 35,000 54,000
Total 11,33, 000 13,81,000
Following further particulars for the year 2017-18 are also given:
(i) Dividend paid during the year Rs. 40,000.
(ii) The company sold part of the fixed assets for Rs. 32,000 (W.D.V. Rs. 20,000). Depreciation
charged on fixed assets during the year Rs. 76,000.
(iii) Interest accrued and paid during the year on Bank Loan Rs. 24,000.
(iv) Income tax paid during the year Rs. 1,16,000.
You are required to prepare the Cash Flow Statement of Nico Ltd. for the year ended
31.3.2018.

Answer:
Cash from operating activities = Rs. 2,01,000;
Cash from investing activities = Rs. (2,58,000);
Cash from financing activities = Rs. 76,000.

3. Presented below are the Balance Sheet of Joy Ltd. as at 31st March, 2010 and 2011.
Sl. Particulars 2011 2010
No. (Rs.) (Rs.)
I. Equity & Liabilities:

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Equity Share Capital 43,00,000 40,00,000

Reserve & Surplus 6,40,000 9,80,000
Debentures 20,50,000 22,00,000
Tread Creditors 6,50,000 8,00,000
Provision for taxation 1,25,000 1,00,000
Provision for depreciation (Equipment) 3,00,000 2,00,000
Provision for depreciation (Building) 6,00,000 5,00,000
Total 86,65,000 87,80,000
II. Assets:
Land 15,00,000 18,00,000
Building 25,00,000 25,00,000
Equipment 20,00,000 16,00,000
Inventory 14,00,000 15,50,000
Trade Debtors 8,00,000 6,50,000
Cash & Bank Balances 4,00,000 6,00,000
Prepaid expenses 65,000 80,000
Total 86,65,000 87,80,000
Additional Information:
(a) Land was sold for cash at a profit of Rs. 50,000.
(b) Dividend were paid during the year Rs. 4,50,000.
(c) Net Profit for the year Rs. 1,60,000.
(d) Equipment costing Rs. 6,00,000 was purchased and costing Rs. 2,00,000 with a book value
of Rs. 40,000 was sold for Rs. 30,000.
(e) Debentures were redeemed at face value by issuing shares at par.
(f) Amount transfer to provision for taxation during the year Rs. 1,60,000.
Prepare a Statement of Cash Flow as AS-3 for the year ended 31.3.2011.

Answer:
Cash from operating activities = Rs. 3,20,000; Cash from investing activities = Rs. (2,20,000)
Cash from financing activities = Rs. (3,00,000)

4. The following are the summarised Balance Sheet of XY Ltd. as on 31.3.2016 and 31.3.2017:
Particulars Note No. 31.3.16 (Rs.) 31.3.17 (Rs.)

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I. Equity and Liabilities:

1. Shareholders’ Fund:
(a) Share Capital 9,20,000 9,20,000
(b) Reserve and Surplus 1 3,04,000 3,32,000
2. Non-current Liabilities:
Long-term Borrowings 3,60,000 2,80,000
(8% Debentures)
3. Current Liabilities:
(a) Trade Payables (Creditors) 4,12,000 3,84,000
(b) Other Current Liabilities 52,000 48,000
(Outstanding Expenses)
Total 20,48,000 19,04,000
II. Assets:
1. Non-current Assets:
(a) Fixed Assets – Tangible Assets 2 6,48,000 7,04,000
(b) Non-current Investments 4,40,000 2,96,000
(Investments)
2. Current Assets:
(a) Inventories (Stock) 3,28,000 4,24,000
(b) Trade Receivables (Debtors) 2,68,000 1,72,000
(c) Cash and Cash Equivalent 3,60,000 3,60,000
(Cash at Bank)
(d) Other Current Assets 4,000 8,000
(Prepaid Expenses)
Total 20,48,000 19,64,000
Notes to accounts:
31.3.16 (Rs.) 31.3.17 (Rs.)
1. Reserve and Surplus:
(a) Reserve 2,40,000 2,40,000
(b) Balance in the Statement of Profit and Loss 64,000 92,000
3,04,000 3,32,000
2. Fixed Assets – Tangible Assets:
(a) Land and Building 6,00,000 6,00,000
(b) Machinery 2,08,000 2,80,000
Less: Depreciation (Accumulated) 1,60,000 1,76,000
48,000 1,04,000
Total (a + b) 6,48, 000 7,04,000
Additional Information:
(a) 10% dividend was paid during 2016-17.
(b) Machinery for Rs. 1,20,000 was purchased and old machinery costing Rs. 48,000
(accumulated depreciation Rs. 24,000) was sold for Rs. 16,000.
(c) Rs. 80,000, 8% Debentures were redeemed by purchase from open market at Rs. 96 for a
debenture of Rs. 100, at the beginning of the year.
(d) Investments worth Rs. 1,44,000 were sold at book value.
(e) Bad debts written off during the year Rs. 20,000.
Prepare a statement of Cash Flow as per AS 3 for the year ended on 31.3.2017.

Answer:
Cash from operating activities = Rs. 1,51,200;
Cash from investing activities = Rs. 40,000;

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Cash from financing activities = Rs. (1,91,200).

5. From the following balance sheet of RS Enterprise prepare a Cash flow Statement as per AS-
3, and comment on it.
Balance Sheet as 31.3.2009 and 31.3.2010 (‘000)
Particulars 2010 2009
I. EQUITY AND LIABILITIES
(1) Shareholders’ funds
(a) Share Capital
Equity Capital (@ 10) 1,100 500
8% Redeemable Preference Capital (redeemable at 10% 150 200
premium)
(b) Reserves & surplus 155 150
(2) Non-current liabilities
(a) Long-term borrowings
11% Debentures 450 300
(3) Current liabilities
(a) Trade payables:
Sundry Creditors 100 120
(b) Other current liabilities
Proposed dividend 65 60
Bank overdrafts – 30
(c) Short-term provisions
Provision for tax 40 40
Total 2,060 1,400
II. ASSETS
(1) Non-current assets
(a) Fixed assets
i. Tangible Assets 1,420 750
ii. Intangible Assets
Goodwill 55 80
(b) Non-current investment
(2) Investments 60 80
Current assets
(a) Inventories 270 180
(b) Trade receivables
Debtors 175 240
(c) Cash and cash equivalents
Cash and Bank 45 20
(d) Other current assets
Prepaid Expenses 15 20
Fictitious Assets 20 30
Total 2,060 1,400
Other information available on 31.3.2010:
i. An old furniture (valued at Rs. 14,000 after 30% depreciation) sold for Rs. 12,000. And
accumulated depreciation on fixed assets as on 31.3.09 and 31.3.10 were Rs. 1,80,000
and Rs. 2,10,000.
ii. Land & Building and Stock of another firm of Rs. 5,30,000 and Rs. 60,000 respectively
were purchased for a consideration of Rs. 6,00,000, paid for in shares.
iii. Tax liabilities provided for 2009 was 20% lower than final settlement.

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iv. Debentures were issued at 10% discount, and interest on bank overdraft and dividend
on investment were Rs. 2,400 and Rs. 5,600 respectively.

Answer:
Cash from operating activities = Rs. 238.80
Cash from investing activities = Rs. (152.40)
Cash from financing activities = Rs. (31.40)

6. From the following summary Cash A/c of Torsha Ltd. prepare Cash Flow Statement for the
year ended 31.3.2018 in accordance with AS-3 (Revised) using the direct method. The
Company does not have any cash equivalents.
Summary Cash A/c for the year ended 31.3.2018 (Rs. ‘000)
Particulars Rs. Particulars Rs.
Balance (1.4.17) 50 Payment to Suppliers 2,000
Issue of equity shares 200 Purchase of computers 200
Issue of preference shares 100 Overhead expenses 200
Receipts from customers 2,800 Wages and salaries 100
Sale of furniture 100 Taxation 250
Dividend 50
Repayment of bank loan 300
Balance (31.3.18) 150
3,250 3,250

Answer:
Cash from operating activities = Rs. 250;
Cash from investing activities = Rs. (100);
Cash from financing activities = Rs. (50).

❖ INTRODUCTION TO FINANCIAL STATEMENT:

 Theory:
1) Differentiate between Comparative and Common Size Statement Analysis.
2) Differentiate between Traditional and Modern Approach to Financial Statement
Analysis.
3) What do you mean by Financial Statement Analysis? Discuss three objectives of
Financial Statement Analysis.
4) Discuss the utility of Financial Statement Analysis to different stakeholders of business
firm.
5) Discuss the limitations of Traditional Financial Statement Analysis.

 Numerical Problems:
 Common Size Income Statement:
1. With the help of following information for the year ended 31.03.2021, prepare a Common
size Income Statement.
Particulars Rs.
Office and Selling and Distribution Expenses 60,000
Other Income 20,000
Total Cost of Sales: 75% of Net Sales ?
Net Profit Before Tax 1,20,000

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Answer: Cost of Sales = Rs. 3,00,000

2. With the help of following information for the year ended 31.03.2017, prepare a Common-
size Income Statement.
Particulars Small Bros.
Office and Selling and Distribution Expenses Rs. 60,000
Other Income Rs. 20,000
Cost of revenue from operation :75% of revenue from operation ?
Net Profit before Tax Rs. 1,20,000

Answer:
Revenue from operation = Rs. 6,40,000; Cost of Revenue from operation = Rs. 4,80,000

3. Following data are available from M. & Co. for 2006 and 2007. You are required to prepare a
common size statement of income.
Profit and Loss Statement of M & Co.
For the year ended 2006 and 2007
Particulars 2006 2007
Income & Revenue : 10,00,000 12,50,000
i) Income from operation (Sales)
ii) Other income
Commission received 50,000 75,000
Discount received 1,00,000 1,25,000

Total 11,50,000 14,50,000

Expenses:
i. Purchase ( cost of goods sold) 8,00,000 9,00,000
ii. Changes in inventory ( assumed no changes
iii. Finance Cost
iv. Other expenses
Operating Expenses 2,00,000 3,00,000
Non- operating expenses 50,000 75,000

Total 10,50,000 12,75,000

Net Profit 1,00,000 1,75,000

Comment briefly on results.

Answer: Net income before tax: 2006 = Rs. 1,00,000; 2007 = Rs. 1,75,000

4. With the help of following information for the year ended 2006, prepare a ‘common size
income statement.’
Rs.
Selling and distribution expenses 10,000
Administration expenses 20,000
Cost of sales: 75% of Net Sales.
Income Tax: 20% of Net Profit before tax
Net income after tax 48,000

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Other income 10,000

Answer: Operating Profit = Rs. 50,000; Sales = Rs. 2,00,000.

 Trend analysis:
1. From the trend % supplied below, prepare a Comparative Statement of current assets in
absolute value taking 2016 as the base year.
Trend % Corresponding value of current assets
2017 2018 2019 2019
120 130 150 3,600 – Cash & Bank
130 140 200 6,800 – Debtors
160 220 250 4,000 – Finished Goods
175 250 300 4,500 – W.I.P.
110 150 175 1,750 – Raw Materials

Answer:
Current Assets 2016 2017 2018
Cash & Bank 2,400 2,880 3,120
Debtors 3,400 4,420 4,760
Finished Goods 1,600 2,560 3,520
W.I.P. 1,500 2,625 3,750
Raw Materials 1,000 1,100 1,500

2. From the following ‘Trend Analysis’ construct the comparative statement of Fixed Assets in
absolute value taking 2016 as the base year.
Trend percentage Corresponding value of Fixed Assets
2017 2018 2019 in 2019
(%) (%) (%) (Rs.)
90 80 70 14,000 Goodwill
125 160 180 5,40,000 Land and Building
110 125 160 4,80,000 Plant
120 200 230 4,60,000 Machinery
105 115 120 60,000 Furniture

Answer:
Non- Current Assets 2016 2017 2018 2019
Goodwill 14000 18000 16000 14000
Land and Building 300000 375000 480000 540000
Plant 300000 330000 375000 480000
Machinery 200000 240000 400000 460,000
Furniture 50000 52500 57500 60000

3. Find the sales of the base period and other missing data from the following figures of A Ltd.
Year 2015 2016 2017 2018 2019
Sales (’000) 1,980 ? 2,805 3,140 3,798
Trend (%) 110 130 ? ? ?

Answer:
Sales of the base period 2014 Rs. 1800 and 2016 Rs. 2340
Trend: 2017 =156% , 2018 = 174% , 2019= 211%

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4. Find the sales of the base year and other missing data from the following figures of Zap Ltd.
Year 2016 2017 2018 2019 2020
Sales (Rs.’000) 47,200 ? 63,200 72,800 ?
Trend (%) 118 134 ? ? 213

Answer:
Sale of the base year (2015) = Rs.40,000
Missing figures of the given problem:
Year 2016 2017 2018 2019 2020
Sales (Rs.’000) 53600 85200
Trend (%) 158 182

 Comparative Statement Analysis:

1. From the following figures of the Balance Sheet of X & Co. Ltd., prepare a Comparative Balance
Sheet.
Particulars 31.3.2017 (Rs.) 31.3.2018 (Rs.)
Equity Share Capital 4,00,000 5,00,000
Preference Share Capital 2,00,000 1,00,000
10% Debenture 1,50,000 1,00,000
Reserve and Surplus 40,000 70,000
Long-term Loans 2,00,000 3,00,000
Investments 2,20,000 2,50,000
Fixed Assets 5,70,000 6,30,000
Current Assets 2,80,000 3,10,000
Current Liabilities 80,000 1,20,000

Answer:
Absolute Change in Balance Sheet Total = Rs. 1,20,000;
% change in Balance Sheet Total = 11.214%

2. From the following Balance Sheet of Das Bro., Prepare Comparative Balance Sheet.
Balance Sheet as at 31st December
2018 2019 2018 2019
Liabilities Assets
(Rs.) (Rs.) (Rs.) (Rs.)
Capital 30,000 60,000 Fixed Assets 80,000 1,02,000
Reserve 12,000 10,000 Debtors 10,000 20,000
Loan 60,000 60,000 Bank 12,000 8,000
1,02,000 1,30,000 1,02,000 1,30,000

Answer:
Absolute Change in Balance Sheet Total = Rs. 28,000;
% change in Balance Sheet Total = 27.45%

3. Prepare a comparative Balance Sheet of Alpha Ltd. as per modern approach.

Balance Sheet (Rs. in ’000s)
Particulars 2011 2012
I. EQUITY AND LIABILITIES
(1) Shareholders’ funds

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(a) Share capital

Equity Share Capital (Rs. 10 each) 300 375
9% Preference Share Capital (Rs. 100 each) 200 250
(b) Reserve and surplus 40 65
(2) Non-current liabilities
(a) Long-term borrowings
11% Debentures 500 200
(3) Current liabilities
(a) Short-term provisions
Provision for Depreciation on Fixed Assets 80 60
Proposed Dividend 30 40
Provision for Tax 55 60
Total 1,205 1,050
II. ASSETS
(1) Non-current assets
(a) Fixed assets 700 800
(b) Non-current investments
Investments 400 100
(2) Current assets
(a) Trade receivables
Receivables 45 60
(b) Cash and cash equivalents
Cash and Bank 35 70
(c) Other current assets
Prepaid Expenses 10 12
Miscellaneous Expenses 15 08
Total 1,205 1,050

Answer: Balance Sheet Total: 2011 = Rs. 1,125; 2012 = Rs. 990.

❖ RATIO ANALYSIS:
 Theory:
1) State the limitations of Accounting Ratios.
2) State the importance of Ratio Analysis.
3) Do you think that ratios are enough to interpret financial statement? – Explain your
view.
4) Write short note on limitations of Ideal or Standard Ratio.
5) State the circumstances where:
(a) Current ratio is high, but Quick ratio is low.
(b) Gross profit is high, but Net profit is low.
6) Differentiate between Debt-Equity Ratio and Capital Gearing Ratio.

 Numerical Problems: [Small Type]

1. From the following calculate ROCE and Return on Net-Worth:
Share Capital Rs. 30,00,000;
General Reserve Rs. 15,00,000;
Balance of Statement of Profit & Loss Rs. 5,00,000;
15% Long-term Loan Rs. 30,00,000;
PBT Rs. 17,50,000.
Ignore tax.

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Answer: ROCE = Rs. 27.5%; Return on Net Worth = 35%.

2. Assuming 360 days in a year, calculate average collection period from the following:
Rs.
Average Inventory 3,60,000
Debtors 2,40,000
Inventory Turnover 6
Gross Profit 10%
Credit Sales to Total Sales 20%

Answer: 180 days.

3. Name the ratio that you would calculate in each of the following cases to indicate:
(a) The ability of the company to meet its current obligations.
(b) The rapidity with which accounts receivables are collected.
(c) The ability to meet interest (and other fixed charges) obligations.
(d) The profitability of equity funds invested in the firm.
(e) The dividend paid in relation to earnings per share.

Answer:
(a) Current ratio; (b) Debtors turnover ratio; (c) Interest Coverage ratio; (d) Return on Net
Worth; (e) Dividend Pay- out ratio.

4. Assuming the Current Ratio of a company is 2, state in each of the following cases whether
the ratio will improve or decline or will have no charge.
(i) Payment of Current Liability; (ii) Payment for fixed asset; (iii) Cash collected from Debtors;
(iv) Bills receivable dishonoured and (v) Issued of new shares.

Answer:
(i) Current Ratio will improve.
(ii) Current Ratio will decline.
(iii) Current Ratio will have no change.
(iv) Current Ratio will have no change due to dishonour of bills receivable.
(v) Current Ratio will improve.

5. From the following particulars of Telco Ltd. for the year ended 31.03.2021, calculate the
following ratios:
Sales (fully credit) Rs. 2,00,000
Purchase (fully credit) Rs. 1,20,000
Average Creditors Rs. 40,000
Average Debtors Rs. 20,000
a. Debtors turnover ratio
b. Creditors turnover ratio
c. Debtors collection period
d. Creditors payment period (1year=360days)

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Answer: a. 10 times; b. 3 times; c. 36 days; d. 120 days

6. Given working capital to fixed assets = 1.5 and 60% of fixed assets were financed by
proprietor's fund. Compute an appropriate ratio to test the long-term solvency and
comment upon it.

Answer: Debt equity ratio = 3.17

7. Calculate : (i) current ratio, (ii) liquid ratio, and (iii) absolute liquid ratio from the following
data and comment on their relations :
Current assets Rs. 2,60,000; marketable securities Rs. 60,000, cash in hand and at bank Rs.
50,000; Current liabilities Rs. 2,60,000 (bank overdraft Rs. 1,50,000); Liquid assets Rs.
2,30,000.

Answer: i. 1; ii. 2.09; iii. 1

8. Assuming 360 days in a year, calculate the average collection period from the following:
Average inventory Rs. 1,80,000
Trade Receivable Rs. 1,20,000
Inventory Turnover 6 times
G. P. ratio 10%
Credit Revenue from operation to Total Revenue from operation 20%

Answer: 180 days.

9. From the following information of A Ltd. for a particular year, find out (i) Cash Position ratio,
(ii) Cash Defensive or Interval ratio and (iii) Cash Cycle: Rs.
a) Cash and cash equivalent 20,00,000
b) Total Assets 80,00,000
c) Annual cash flow as per Income Statement 1,82,50,000
d) Average Credit Purchases 30,00,000
e) Average Trade Payable 6,00,000
f) Average Trade Receivable 10,00,000
g) Annual Credit Revenue from operation 73,00,000
h) Average stay of inventory in process and storage 40 days.
Also comment on liquidity of the company by combining your results.

Answer: (i) 25%; (ii) 60 days; (iii) 17 days.

10. Compute Debt-Equity ratio from the following and comment upon it:
Equity Share Capital Rs. 6 lac
9% Preference Share Capital Rs. 2.5 lac
Reserves and Surplus Rs. 1.2 lac
10% Debentures Rs. 3.2 lac
Secured loan (8%) Rs. 1.3 lac
Preliminary Expenses Rs. 0.3 lac

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Miscellaneous Expenditures Rs. 0.4 lac

Answer: 1:2

11. M Ltd. has the following earnings in 2018-19:

Profit before tax (Rs. in lakhs) – 48.92
Tax: 60%
Market price per equity share = Rs. 400
Capital of the company is:
9% Preference Shares: Rs. 20 lakhs
Equity shares (30,000 shares of Rs. 200 each): Rs. 60 lakhs.
From the above compute for equity shares:
a) Earning per share
b) Earning yield ratio

Answer: Earning per share = Rs. 59.23; Earning yield ratio = 14.81%

12. Capital mix of Co. A and Co. B are as follows:

A (Rs.) B (Rs.)
Equity Capital (Rs. 10 each) 4,00,000 4,00,000
10% Debentures 3,00,000 1,00,000
7% Preference Share Capital 1,00,000 3,00,000
8,00,000 8,00,000
ROI of A and B is 10% (assured).
Both the companies are under 50% tax net.
Which company is more acceptable to equity shareholders and why?

Answer: EPS: A = Rs. 0.45; B = Rs. 0.35. So, Co. A is more acceptable.

13. Given Current Ratio = 2.8; Quick Ratio = 1.9; Stock Turnover (on sales) = 3 months and Sales
= Rs. 36,00,000. Find the value of Current Assets and Current Liabilities assuming no
overdraft and pre- payments.

Answer: CA- Rs. 28,00,000; CL- Rs. 10,00,000

14. Compute ‘Operating Expenses Ratio’ and the amount of ‘Office Overhead’ from the
following:
Sales Rs. 10,00,000
1
Gross Profit is 333% of cost of goods sold
Net Operating Profit is 25% of operating cost.
Office Overhead to Selling and Distribution Overhead is 3:2.

Answer: Operating Expenses Ratio = 5%; Office Overhead = Rs. 20,000.

 Numerical Problems: [Big Type]

1. From the following financial data make out a statement of ‘Proprietor’s Fund’ with as
many details as possible.

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Proprietary Ratio Non-current Asset (NCA) to Proprietor’s Equity 0.75

Current Ratio 2.50
Liquid Ratio 1.50
Capital Gearing (Equity Capital to Preference Capital) 2:1
Reserve & Surplus to Equity Capital 0.30
Working Capital 90,000
Bank Overdraft 20,000
There is no long-term loan on fictitious assets.

Answer: Proprietor’s Fund = Rs. 3,60,000.

2. Prepare Statement of Proprietor’s Fund from the following data:

Gross profit ratio 25%
Current Ratio 1.5
Stock to Current Liabilities 1/2
Stock Turnover Ratio (based on cost) 73 days
Fixed assets to Net worth 0.80
Debtors Turnover 4 times
Gross Profit 3,00,000
Reserve to Share Capital 0.25
Non-trading investment 70,000
There is no borrowings.

Answer: Rs. 12,50,000.

3. Prepare a statement of Proprietor's Fund, as per modern approach from following available
financial records:
Stock Velocity 6
General Reserve to Equity Capital 20%
Capital Gearing 2:3
Co's Non-Current Assets to net worth 60%
Non-Current Asset Turnover 4
Gross Profit Ratio 20%
Miscellaneous Expenses Rs. 20,000
Debtors' Velocity 2 months
Deferred Expenditure Rs. 30,000
Creditors' Velocity 73 days
Gross Profit Rs. 1,20,000
Opening balance of account receivables was Rs. 20,000 in excess of closing balance, closing
stock was Rs. 10,000 in excess of opening stock.

Answer: Rs. 2,50,000

4. Prepare the Balance Sheet of D Ltd. as on 31.3.2019 with the help of following information:
Non-current Assets = Rs. 6,00,000; G. P. ratio = 25%
Working Capital Rs. 4,00,000; Debtors Turnover = 1.5 months; Working Capital ratio = 2;
Creditors Turnover = 2 months; Non-current Assets Turnover ratio = 4; Inventory Turnover

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= 2 months; Net profit ratio = 5%; Reserve = 2/3rd of Net profit, Capital Gearing ratio (long-
term loan to Proprietary Fund ratio) = 1:1.

Answer: Balance Sheet Total = Rs. 14,00,000

5. From the following information prepare a Balance Sheet of Moon Ltd. as on 31.12.99.
Current Ratio 2:1
Liquidity Ratio 1.25:1
Fixed Assets to Proprietorship Ratio 0.75:1
Gearing Ratio 5:1
Working Capita Rs. 8,000
Reserves & Surplus Rs.2,000
Bank Overdraft Rs. 2,000
Long-term Loan NIL

Answer: Balance Sheet Total = Rs. 40,000

6. Prepare a Trading and Profit & Loss Account for the year ended 31.03.2019 from the
following:
Current Ratio: 2.2; Debtors Velocity 73 days; Acid-test ratio: 1.4; Office O/H to Selling and
Distribution O/H: 1/3; G.P. Ratio: 0.25; Creditors Velocity: 3 months; Operating ratio: 0.85;
Stock Velocity: 4; Depreciation: Rs. 8,000; Cash purchase 20%; Bank Overdraft: Rs. 20,000.
Net Working Capital: Rs. 1,20,000; Goods are sold on credit only. Cost of goods sold includes
chargeable expenses.

Answer: Gross Profit = Rs. 1,40,000; Net Profit = Rs. 84,000.

7. From the following information prepare Trading Account, Profit and Loss Account and
Balance Sheet of X Co. Ltd.
Current Ratio 2.2:1
Liquid Ratio 1.7:1
Gross Profit Ratio 16%
Net Profit Ratio 7%
Debtors Turnover 6 times
Stock Turnover 5.6 times
Proprietor’s Fund to Equity Share Capital 1.2:1
Working Capital Rs. 1,44,000
Equity Share Capital 65,000 shares of Rs.
10 each

Answer:
Gross Profit = Rs. 64,000; Net Profit = Rs. 28,000; Balance Sheet Total = Rs. 9,00,000.

❖ ACCOUNTING STANDARDS:
 IND AS 1:
 Theory:

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1) What do you mean by Conceptual Framework of financial reporting? Discuss the need
of a conceptual framework.
2) Explain the benefits of conceptual framework.
3) Specify 3 purposes of conceptual framework for preparation and presentation of
financial statement of a company.
4) Discuss the qualitative characteristics of financial statement.
5) What are the components of financial statements as per Ind AS 1, preparation of
financial statement?
6) Explain ‘understandability’ and ‘comparability’ qualitative characteristics of financial
statement.
7) What are the basic assumptions in the preparation of financial statement?
8) What are included in a complete set of financial statement as per Ind AS 1?

 Numerical Problems:
1. X Ltd. provides you the following information:
Raw-materials stock holding period 2 months
Processing period of raw-materials 1 months
Finishing goods holding period 3 months
Debtors collection period 2 months
You are required to compute the operating cycle of X Ltd.

Answer: 8 months.

 IND AS 16:
 Theory:
1) State the assets to which Ind AS 16, Property, Plant and Equipment does not apply?
What are the conditions needed to be satisfied in order to recognise the cost of an item
of Property, Plant and Equipment as an assets?
Define carrying amount and depreciable amount as per Ind AS 16.
2) State the objective of Ind AS 16.
Mention any 5 items which are to be capitalised while purchasing Plant and Machinery
as per Ind As 16.
3) How is the surplus or deficit arising on revaluation of property, plant and equipment
treated in the financial statement as per Ind AS 16?
4) Discuss the basic recognition criteria of property, plant and equipment as per Ind AS 16.

 Numerical Problems:
1. XYZ Ltd. is installing a new plant at its production facility. It has incurred the following costs:
Particulars Rs.
(i) Cost of plant (cost of supplier’s invoice plus taxes) 1,00,00,000
(ii) Initial delivery and handling costs 5,00,000
(iii) Installation and assembly costs 10,00,000
(iv) Consultancy fees in connection with acquisition of the assets 2,00,000
(v) Interest charges paid to suppler of plant for deferred credit 6,00,000
(vi) Interest on loan taken for purchasing the plant during the period of
installation and assembly 2,00,000
(vii) Present value of estimated dismantling cost to be incurred after 10
years 3,00,000

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(viii) Operating losses before commercial production 5,00,000

Advise the management regarding capitalisation of cost accordance with Ind AS 16.

Answer: Capitalisation of Plant = Rs. 1,22,00,00.

st
2. On 1 Oct. 2018, X Ltd. began construction of a new plant. Costs relating to construction
are given below. (Rs. In thousands)
Purchase of land 10,000
Employment of cost directly related to construction 2,400
Cost of dismantling existing costs 600
Purchase of materials to construct the plant 6,000
Production overhead directly related to construction 1,200
General Administrative overhead 900
Consultant’s Fee related to construction 400
Rectification of Damage due to gas leak 200
Cost of relocating staff to work at new factory 300
Cost relating to formal opening the plant 200
Plant and Machinery Purchased 6,000
The plant took eight months to complete and was brought to use on 30th June, 2019.
Determine the cost of assets to be included in the balance sheet on initial recognition giving
reasons for inclusion and exclusion.

Answer: Total cost of Plant = Rs. 2,06,00,000.

 IND AS 33
 Theory:
1) What is earning per share? Discuss the objectives of Ind AS 33 with regard to Earning Per
Share.
2) What is diluted Earning Per Share? Why is it calculated?

 Numerical Problems:
1. Following particulars are made available to you:
EBIT for the year 2020-2021 Rs. 92,000 and Rate of Income Tax 25%
12% Debenture Rs. 1,00,000
Share Capital on 31.03.2021 :
10% Cumulative Preference Shares of 80,000 and
10,000 Equity Shares of Rs. 10 each fully paid
Calculate EPS when –
(a) No equity shares were issued during the year
(b) 2,400 equity shares were issued on 30.11.2020.

Answer: (a) Rs. 5.20; (b) Rs. 6.19

2. [Accounting year: 1.4.2018 to 31.3.2019]

No. of shares Nominal value Amount paid
issued of shares (Rs.) per share (Rs.)
1.4.18 Opening balance 1,800 10 10
31.1.19 Issue of shares 600 10 6

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Assuming that partly paid shares are entitled to participate in the dividend to the extent
they are paid, the number of partly paid to be considered is 60% of no. of issues i.e., (600 x
0.6) = 360, 60% being the percentage of nominal value paid per share.
Weighted average would be = 1,860 shares

3. MP Ltd. had outstanding equity shares of 3,00,000 of Rs.10 each as on 31.3.2019. After tax
profit for the year was Rs. 6,00,000. MP Ltd. Had 5,000 10% Convertible Debentures of
Rs.100 each to be converted into Rs. 10 equity shares as on 31.3.2019. Tax rate is 30%.
Calculate: (a) Basic EPS, (b) Diluted EPS

Answer: (a) Basic EPS= Rs. 2 (b) Diluted EPS = Rs. 1.81

4. From the following information compute Earnings Per Share as per Ind AS 33.
Ordinary shares of Rs. 10 each fully paid Rs. 12,00,000
12% Preference Shares of Rs. 10 each Rs. 6,00,000
Profit before tax during the year Rs. 4,00,000
Corporate tax ratio 40%

Answer: Rs. 1.40

5. From the following information relating to S Ltd. calculate Basic EPS and Diluted EPS as per
Ind AS 33:
Net profit (after tax) for the current year Rs. 3,00,00,000
No. of Outstanding Equity Shares 50,00,000 shares of Rs. 10 each
No. of 10% fully Convertible Debentures 50,000 debenture of Rs. 100 each
12% Cumulative Preference Share 50,000 shares of Rs. 100 each
Corporate Tax Ratio 30%
Each fully convertible debenture will be converted into 8 Equity Share of Rs. 10 each.

Answer: Basic EPR = Rs. 5.88; Diluted EPS = Rs. 5.51

6. From the following information given by Parag Ltd. calculate basic EPS as per Ind AS 33.
Profit before tax for the current year Rs. 1,00,00,000
Equity share capital Rs. 10 each Rs. 60,00,000
Equity share capital Rs. 10 each, Rs. 4 each Rs. 20,00,000
12% Cumulative Preference shares Rs. 50,00,000
Corporate Tax Rate applicable 30%

Answer: Rs. 9.41

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