CBSE Class 12 Accountancy HOTs Analysis of Financial Statement

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Part 2 Chapter 4 Analysis of Financial Statements Class 12 Accountancy HOTS

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HOTS Questions Part 2 Chapter 4 Analysis of Financial Statements Class 12 Accountancy with Answers

UNIT 6. FINANCIAL STATEMENT ANALYSIS:

LEARNING OBJECTIVES:

After studying the lesson, students will be able to:

* Understand the meaning of financial statements and their objectives.

* Identify the parties interested in the financial statements.

* Understand the meaning of financial analysis and its objectives

* Understand the parties interested in financial Analysis

* Analyse the limitation of financial analysis

* Prepare comparative Income statement and Position Statement.

* Prepare Common Size Statements

* Understand the tools of Financial Analysis.

SALIENT POINTS:-

* Analysis of Financial statement is the systematic process of identifying the financial strength and weaknesses of the firm by establishing the relationship between the items of the Balance Sheet and income statement.

* The information available from the Analysis, serves the interest of different sections like Management, shareholders, workers, creditors, government, Potential Investors, Economist and Researchers and Stock Exchange.

* Financial analysis can be External Analysis and Internal Analysis, Horizontal analysis and Vertical Analysis.

* External Analysis: when analysis is made on the basis of Published statements, reports and information then this is known as External analysis.

* Internal Analysis: This analysis is based upon the information available to the business only.

* Horizontal Analysis: This analysis is based on the financial statements of different years of the same business unit or financial statements of a particular year of different business units.

* Vertical Analysis: According to this analysis financial statement of the same period or different items of the same financial statements are compared.

* Comparative statements, Common Size statements, Trend Analysis, Ratio Analysis, Fund Flow Statement, Cash flow statement are the Tools of financial statement analysis.

 * Comparative Statements: it helps in ascertaining change in the items of income statement and Position Statement of different years in terms of figures and percentage

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QUESTIONS: 01 MARKS 

1. How would you show the following two items in a company‘s Balance Sheet as at 31st March, 2012 as per the requirement of Schedule VI:

General Reserve(Since 31st March, 2011) Rs. 3,00,000, Statement of Profit and Loss(Debit Balance) for 2011-12 Rs. 2,00,000.

 

Ans. Balance Sheet

 

As at 31st march, 2012

 

Equity and Liablities           Note No.      Rs.

 

Shareholders‘ fund

 

Reserve and Surplus             1              1,00,000

 

Notes to Accounts:

 

Reserve and Surplus

 

General Reserve(1st April, 2011)                       3,00,000

 

Less: Statement of Profit and Loss(Dr. Balance)  2,00,000

 

                                                                      1,00,000

 

2. Under Which main headings and sub-headings of Equity and Liabilities of the balance sheet as per the Revised Schedule VI of a company will you classify the following items:

 

i. Proposed dividend.

 

ii. Fixed Deposit from Public.

 

Ans. Sr. No.      Items                       Main-Heading                       Sub-Heading

 

       i.        Proposed dividend               Current-Liabilities             short-term provision

 

       ii.       Fixed deposit from Public       non-current liabilities       long term borrowing

 

3. State any two items which are shown under the head ‗Investment‘ in a company balance sheet. (1)

 

Ans. (i) Government Securities.

       (ii) Sinking Fund Investment.

 

4.How is analysis of Financial statements suffered from the limitation of window dressing ? (1)

 

Ans. Analysis of financial statements is affected from the limitation of window dressing as companies hide Some vital information or show items at incorrect value to portray better profitability and financial Position of the business, for example the company may overvalue closing stock to show higher profits.

 

5. What is the interest of Shareholders in the analysis of Financial Statements? (1)

 

Ans. (i) They want to judge the present and future earning capacity of the business.

       (ii) They want to judge the safety of their investment.

 6. Name two tools of Financial Analysis? (1)

Ans. (i) Comparative Financial Statements.

(ii) Ratio Analysis etc. 

7. What is Horizontal Analysis? (1)

 

Ans:The analysis which is made to review and compare the financial statements of two or more then two Years is called Horizontal Analysis.

 

8. Give the example of Horizontal Analysis. (1)

 

Ans. Comparative Financial Statement.

 

9. What is Vertical Analysis? (1)

 

Ans:11 The Analysis which is made to review the financial statements of one particular year only is called Vertical Analysis.

 

10. Give the example of Vertical Analysis? (1)

 

Ans. Ratio Analysis.

 

QUESTIONS 03 MARKS

 

1. Give the Main Heading and Sub- Heading of Equity and Liabilities of the Balance sheet of

a company as per the Revised Schedule VI of the companies Act.1956.

CBSE_Class_12_Accountancy_Financial_Statement_7 

3. Give the Main Heading and Sub- Heading of Assets of the Balance sheet of a company as

 

per the Revised Schedule VI of the companies Act.1956.

 

Ans. ASSETS

 

(1) Non-Current Assets

 

(a) Fixed Assets

 

i. Tangible Assets

 

ii. Intangible assets

 

iii. Capital work-in progress

 

iv. Intangible assets under development

(b) Non-current investments

(c) Deferred tax assets (net)

(d) Long-term loans and advances

(e) Other non-current assets

(2) Current Assets

(a) Current investments

(b) Inventories

(c) Trade receivables

(d) Cash and cash equivalents

(e) Short-term loans and advances

(f) Other current assets

 

4. Rearrange the following items under assets according to Revised or New Schedule VI:

a. Livestock

b. Loose Tools.

c. Goodwill

d. Trademarks

e. Bills Receivable

f. Debtors

g. Land

h. Leasehold

i. Stock-in-Trade

j. Stores and Spare Parts

k. Vehicles

l. Cash at Bank

m. Work in Progress(Machinery)

n. Interest accrued on Investment

o. Furniture

p. Advance to Subsidiaries

q. Cash in Hand

r. Plant

s. Deposits with electricity supply company.

Ans.

i. Fixed Assets(Tangible): Livestock, Land, Leasehold, furniture, vehicles and plant

ii. Capital Work-in-progress: Work in progress(Machinery)

iii. Fixed Assets(Intangible): Goodwill and Trademarks

iv. Inventories: Loose Tools, Stock-in-Trade, Stores and Spare Parts.

v. Trade Receivables: Bill Receivables, Debtors

vi. Cash and Cash Equivalents: Cash at Bank, Cash in Hand

vii. Long term Loans and Advances: Advance to Subsidiaries, Deposits with

Electricity Supply Company.

viii. Other Current Assets: Interest Accrued on Investments.

 

4. List any three items that can be shown as contingent Liabilities in a company‘s Balance sheet.

Ans: (i) Claims against the Company not acknowledged as debts.

(ii) Uncalled Liability on partly paid shares.

(iii)Arrears of Dividend on Cumulative preference shares.

 

5. How is a Company‘s balance sheet different from that of a Partnership firm? Give Two point only.

 

Ans. (i) For company‘s Balance Sheet there are two standard forms prescribed under the companies Act.1956 .Whereas, there is no standard form prescribed under the Indian partnership Act,1932 for a partnership Firms balance sheet.

 

(ii) In case of a company‘s Balance sheet previous year‘s figures are required to be given whereas it is not so in the case of a partnership firms balance sheet.

 

QUESTIONS 04 MARKS

 

1. Prepare Comparative and Common Size income statement from the following information for the year‘s ended march 31, 2008 and 2009.CBSE_Class_12_Accountancy_Financial_Statement_8

RATIO AND ANALYSIS

 

Learning outcomes:

• Explain the meaning of accounting ratios.

• Understand the objectives and limitation of accounting ratios.

• Classify the ratios as profitability, activity and solvency.

• Compute various profitability, activity and solvency ratios.

• Express your views about the operational efficiency and financial soundness of the company.

•Comment upon the performance of the enterprise.

• Recommend financial measures to be adopted to strengthen financial structure of the company

 

IMPORTANT FORMULAE OF RATIO ANALYSIS

 

Profitability ratio

1. Gross Profit Ratio = Gross profit/Net sales*100 {gross profit=Net sales- cost of goods sold}

2. (a) Net profit ratio= Net Profit/Net sales*100 {Net Profit=Gross profit+operating and non operatingincome-operating and non operating expenses.}

    (b)Operating Net profit ratio =Operating Net profit/Net sales*10

3 Operating Ratio= (Cost of goods sold + Operating expenses) / Net Sales x 100 

 

4 Return on investment ( ROI)= Net Profit before interest,tax and dividend / Capital Employed  X 100 

Capital employed= Share Capital+Undistributed profit+long term loans- (fictitious assets like underwriting commission, preliminary expenses,

discount or loss on issue of shares and non-operating assets like Investments).

                        or

Net fixed assets+Working capital

 

working capital= Current assets-current liabilties.

 

5 Earning per share= Net Profit-Preference dividend / No.of Equity shares

 

6 Dividend per share=Net Profit after interest, taxes and preference dividend / Number of equity shares.

 

7 Price Earning Ratio=Market price of a share / Earning per share

 

(B) TURNOVER OR ACTIVITY OR PERFORMANCE RATIOS:

1 Working capital turnover ratio=Net Sales

working capital

Working Capital= Current assets- current Liabilities

 

3 Debtors turnover ratio= Net credit sales / Average Debtors

 

Average Debtors=Debtorsin the beginning+Debtors at the end / 2

 

Receivables= Debtors+Bills receivable

 

4 Payable turnover ratio= Net credit purchases / Account Payable

 

5 Fixed Assets Turnover ratio= Sales or cost of goods sold /  Net fixed assets

 

6 Current assets Turnover Ratio=Net sales or cost of goods sold / current Assets.

 

LIQUIDITY RATIOS:

 

1 Current ratio= current Assets /  current liabilities

 

2 Liquid or quick or acid test ratio= liquid assets

              current liabilities

Solvency ratios

 

1 Debt to equity ratio= Long term loans

          Shareholder's funds

 

2 Total assets to debt ratio= Total assets / Long term debts.

 

3 Proprietory ratio= Proprietors fund or shareholders fund / Total Assets

 

4 Current asset turnover ratio= Net sales/cost of goods sold / current assets

 

5 Fixed assets turnover rqatio= Net sales / Net fixed assets.

 

Ratio Analysis

 

Questions for 1 mark

 

1) X Ltd has a debt Equity Ratio at 3:1. According to the Management, it should be maintained at 1;1. What are the two choices to do so ?

 

Ans : The Two choices to maintain Debt Equity ratio at 1:1 are:

a) To increase the Equity

b) To reduce the debt

 

2) Assuming that the Debt equity ratio is 1:2, state giving reason whether the ratio will improve, decline or will have no change if equity shares are issued for cash.

 

Ans It will decrease the ratio as Equity increases without change in the debt.

 

3) State the satisfactory ratio of Current ratio and Liquid Ratio

 

Ans The Standard Current ratio is 2:1 whereas Ideal Liquid ratio is 1:1.

 

4) Current ratio of a firm is 2:1. State whether ‗Purchase of goods for cash‖ will improve, decrease or will not have any change in the ratio.

 

Ans. It will not change the ratio as stock increases and cash decreases.

 

5) Define ―ratio Analysis‖

 

Ans Ratio Analysis refers to the process of computing, determining and explaining the relationship between the component items of financial statements in terms of ratios.

 

2-3 MARKS

 

6) A company has a current ratio of 4:1 and Quick ratio is 2.5;1. Assuming that the inventories are Rs 22500, find out total current assets and current liabilities.

 

Ans Current ratio ---4:1

      Quick ratio ---2.5:1

      Inventory =4-2.5=1.5

      If inventory is 1.5, then Current assets =4

      If inventory = 22500, then current assets = 4X 22500/1.5 =60,000

      Current Liabilities = 60,000/4 = Rs 15000.

 

7) From the following, calculate stock turnover ratio—

Net Sales –Rs 2,00,000 Gross Profit = 25% Opening stock = 5000

Closing stock : 15000

 

Ans – Stock Turnover ratio = Cost of goods sold/Average stock

Cost of sales= sales-gross profit

Cost of sales = 2,00,000 – 50,000 = 1,50,000

Average stock = Opening stock + closing stock / 2 = 20,000/2 =10,000

 

  1,50,000/10,000 = 15 times.

 

8) Calculate Gross profit and sales—

Average stock = Rs 80,000

Stock turnover ratio = 6 times

Selling price = 25% above cost

 

Ans. Stock Turnover ratio = cost of sales/average stock

       6 = cost of sales/80,000

       Cost of sales = 80,000X 6 = 4,80,000

      Gross profit = 4,80,000 X 25/100 = 1,20,000

      Sales = Cost of sales + Gross Profit

            4,80,000 + 1,20,000 = Rs 6,00,000

 

9) A Company made credit sales of Rs 7,20,000 during the year. If the collection period is 50 days and the year is assumed to be of 360 days. Calculate –

 

a) Average Debtors b) Debtors Turnover ratio c)Opening and Closing Debtors if the closing Debtors are Rs 10,000 more than the opening Debtors.

 

Ans Credit sales per day = 7,20,000/360 = Rs 2000 per day.

      Average Debtors = 2000 X 50 days = Rs 1,00,000

      Debtors Turnover ratio = Net credit sales/Average Debtors

                                       = 7,20,000/1,00,000 = 7.2 times.

      Let the Opening Debtors be ―x‖

      Closing Debtors = ―x + 10,000‖

      Total Debtors = x + x + 10,000 = 2,00,000

                          = 2x+ 10,000 = 2,00,000

                          = 2x = 1,90,000

                        x = 95,000 ( Opening Debtors = 95000)

Closing Debtors = 95000 + 10000 = Rs 1,05,000

 

10) Calculate Operating ratio                — Rs

          Net Sales =                            5,40,000

          Net Purchases                        3,10,000

         Opening Stock                        75,000

         Direct expenses                      32,000

         Closing Stock                          50,000

        Selling expenses                      25,000

        Distribution expenses               15,000

Operating ratio = Cost of sales +Operating expenses/Net sales *100

Cost of sales = Opening stock + Net purchases + direct expenses-closing stock

                   = 75000+3,10,000+32,000-50,000 = 3,67,000

Operating expenses = Selling expenses + Distribution expenses

                   = 25000+15000 = 40,000

Operating ratio = 3,67,000+40,000/5,40,000 X 100 = 75.37%

 

11) Net profit after Interest but before tax Rs 1,40,000

     15% Long term debt : Rs 4,00,000

     Shareholders fund : Rs 2,40,000

     Tax rate : 50% , Calculate Return on capital employed.

Return on capital employed = Net profit before interest and tax/Capital employed X 100

Interest on long term debt = 15/100 X 4,00,000

                                       = 60,000

   Net Profit before Interest = 1,40,000 + 60,000 = 2,00,000

   Capital employed = Debt + Shareholders fund

                                    = 4,00,000 + 2,40,000 = 6,40,000

  Return on Capital employed = 2,00,000/6,40,000 X 100 = 31.25%

 

12) Calculate Inventory Turnover Ratio—

      Sales = Rs 4,00,000 Average stock – Rs 55,000 Gross Loss ratio =10%

      Inventory Turnover ratio = Cost of sales/Average stock

                                          =4,40,000/55000 = 8 times .

 

13) Calculate Fixed Assets turnover ratio-

      Cost of goods sold : Rs 16,80,000

      Gross profit = Rs 5,60,000

      Capital employed = Rs43,00,000

      Working capital = Rs 80,000

 

Fixed assets turnover ratio = Net sales/ Net fixed assets

Net sales = Cost of goods sold + Gross profit

              = 16,80,000 + 5,60,000

              = 22,40,000

 

Capital employed = Net fixed assets + Net working Capital

4,00,000 = Net Fixed assets + 80,000

Net Fixed assets = 3,20,000

Fixed assets turnover ratio = 22,40,000/3,20,000 = 7 times

 

14) Calculate Current Asset Turnover ratio if –

     Cost of goods sold = Rs 7,50,000

    Gross profit                 = Rs 2,10,000

    Total Assets                = Rs 3,00,00

    Capital employed        = Rs 3,00,000

    Working capital              Rs 60,000

Current Assets Turnover ratio = Net Sales/ Net Current assets

Net sales = Cost of sales + Gross Profit

             = 7,50,000 + 2,10,000

              = 9,60,000

Capital Employed = Net Fixed +Net Working Capital

Net Fixed Assets = Capital employed – Net working Capital

                       = 3,00,000 – 60,000

                       = 2,40,000.

Total Assets = Rs 3,00,000

Current Assets = Total assets – Fixed assets

                      = 3,00,000 – 2,40,000

                      = 60,000

Current Assets turnover ratio = Net Sales/Net current Assets

                   = 9,60,000/60,000 = 16 times.

 

15) From the following information calculate =

a) Debt equity ratio

b) Total Assets to Debt ratio

c) Proprietory ratio

 

Equity share capital = Rs 20,00,000

Reserves and Surplus = Rs 12,00,000

12% Debentures = Rs 10,00,000

Bank Loan = Rs 8,00,000

Current Liabilities = Rs 5,00,000

Fixed Assets = Rs 25,00,000

Goodwill = Rs 4,00,000

Current Assets = Rs 18,00,000

        a) Debt Equity Ratio = Debt/Equity

            Debt = 12% Debentures + Bank Loan

                    = 10,00,000 + 8,00,000

                    = 18,00,000

          Equity = Equity share capital + Reserves and Surplus

                    = 20,00,000+12,00,000

                     = Rs 32,00,000

         Debt / Equity = 18,00,000/32,00,000 = 0.56:1

 

        b) Total Assets to Debt ratio = Total Assets/Long term Debt

            Total Assets = Fixed assets + Goodwill + Current assets

                             = 25,00,000 + 4,00,000 + 18,00,000

                             =Rs 47,00,000

            Long Term Debt = 12% Debentures + Bank Loan

                                    = 18,00,000

            Total Assets to Debt Ratio = 47,00,000/18,00,000 = 2.6:1

 

       c) Proprietory Ratio = Equity/Total Assets

                                    = 32,00,000/47,00,000 = 0.68 or 68%

1. Which of the following analysis helps a company to stop selling goods on account to its customers.
 
(a) Debit analysis 
 
(b) Credit analysis
 
(c) Capacity analysis
 
(d) Debt analysis
 
Ans.Credit Analysis
 
2. Which analysis helps a company to stop raising debt funds?
 
(a) Debt analysis
 
(b) Debit analysis
 
(c) Credit analysis
 
(d) All of the above
 
Ans.Debt analysis
 
3. Make pairs from the following terms which is related to the Balance sheet. Current liability, share premium, debentures, reserves and surplus, secured loans, sundry creditors.
 
Ans.Current liability - Sundry creditors
 
Share premium - Reserves and surplus
 
Debentures - Secured loan
 
4. Financial statements doesn’t record certain aspects which are more worthwhile than monetary aspects.
 
(i) Why such aspects cannot be recorded?
 
(ii) Giving examples of such aspects.
 
Ans.The money measurement assumption (monetary unit assumption) underlines the fact that  in accounting every worth recording event, happening or transaction is recorded in terms of money. General health condition of the chairman of the company, working conditions in which a worker has to work etc. cannot be expressed in money terms and therefore are not recorded in the books.

 

Unit 5
Analysis of Financial Statements 

Qus:1 How will you show the following items in the Balance sheet of a company. (i) Loosetools (ii) Livestock
 
Ans:1 (i- Current Assets
ii) Fixed Asset
 
Qus:2 Under what heads the following items on the Liabilities side of the Balance sheet Of a company will be presented
 
(i) Provision for taxation.
 
(ii) Bills Payable
 
Ans:2  Items                   Heading                Sub-Heading
Provision for Taxation     Current Liabilities      Provision
                                     & Provision
Bills payable                 Current Liabilities      Current Liabilities
                                     & Provision 
 
Qus:3 State any two items which are shown under the head ‗Reserves and Surplus‖ in a company balance sheet.
 
Ans:3 (i) Capital Reserve
          ii) Debenture Redemption Reserve
 
Qus:4 Give the format of the Balance sheet of a company(main headings only) as per the requirement of Schedule VI of the companies Act.1956.
 
Ans:4 Balance sheet as on______
Liabilities Rs                .          Assets Rs.
Share capital                          Fixed Assets
Reserve & surplus                   Investment
Secured Loans                       Current Assets,
Unsecured Loans                   Loan and Advances
                                           (a) Current Assets
                                           (b) Loans & Advance
Current Liabilities & Provision  Miscellaneous Expenditures
(a) Current Liabilities             Profit & Loss amount (Dr.Balance)
(b) Provision
 
Qus:5 Give the heading under which the following items will be shown in a company‘s Balance sheet:
 
(i) Patents.
 
(ii) Discount on issue of Debentures
 
(iii) Sundry Debtors
 
(iv) Secutities Premium.
 
(v) Railway sliding.
 
Ans:5 (i) Fixed Assets.
(ii) Miscellaneous Expenditures
(iii)Current Assets Loans & Advance under Current Assets.
(iv)Reserve and Surplus.
(v)Fixed Assets.
 
Qus:6 The following balance have been from the book of Sahara Ltd. Share capital Rs.10,00,000, securities Premium Rs. 1,00,000, 9% Debentures Rs. 500,000, Creditors Rs. 200,000., Proposed Dividend Rs. 50,000. , Freehold property RS. 9,00,000, share of Reliance Industries Rs. 4,00,000, Work-in- Progress Rs. 4,00,000, Discount on Issue of Debentures Rs. 1,00,000. Prepare the balance sheet of the company as per schedule VI part 1 of the companies Act.1956.
 
Ans:6 Total of Balance Sheet Rs.18,50,000.
 
Qus:7 List any three items that can be shown as contingent Liabilities in a company‘s Balance sheet.
 
Ans:7 (i) Claims against the Company not acknowledged as debts .
        (ii) Uncalled Liability on partly paid shares.
        (iii)Arrears of Dividend on Cumulative preference shares.
 
Qus:8 Give two examples Of ―Miscellaneous Expenditure‖
 
Ans:8. Discount on Issue of shares, Advertisement Suspense a/c
 
Q 9. State how the creditors are interested in the Analysis of Financial statements.
 
Qus:10 Prepare Comparative income statement from the following information for the years ended march 31,2003 and 2004.
CBSE_Class_12_Accountancy_Analysis_of_financial_1 
RATIO ANALYSIS
 
Qus:1 How will you asses the liquidity or short term financial position of a business ?
 
Ans:1 Short term financial position of the business is assessed by calculating current ratio and liquid ratio.
 
Qus:2 Current ratio of Reliance Textiles Ltd. Is 1.5 at present. In future it want to improve this ratio to 2. Suggest any two accounting transaction for improving the current ratio.
 
Ans:2 (i) Payment of current liabilities.
         (ii) Issue of share capital etc.
 
Qus:3 State one transaction which results in an increase in ‗ liquid ratio ‗and nochange in ‗current ratio‘.
 
Ans:3 Sale of stock at cost price.
 
Qus:4 Why stock is excluded from liquid assets ?
 
Ans:4 (i) because there is uncertainty whether it will be sold or not.
         (ii) It will take time before it is converted into debtors‘ and cash.
 
Qus:5 Quick ratio of a company is 1.5 :1 . state giving reason whether the ratio will improve , decline or Not change on payment of dividend by the company.
 
Ans:5 Quick ratio will improve as both the liquid assets and current liabilities will decrease by the same Amount.
 
Qus:6 State one transaction which result in a decrease in ‗ debt-equity ratio ‗ and no change in ‗ current Ratio ‗.
 
Ans:6 Conversion of debentures into shares.
 
Qus:7 How does ratio analysis becomes less effective when the price level changes?
 
Ans:7 Accounting ratios are calculated from financial statements, which are down on the basis of historical
        Cost as recorded in the book of accounts .
 
Qus:8. Indicate which ratio a shareholders would use who is examining his portfolio and wants to decide Whether he should hold or sell his shareholdings?
 
Ans:8 Total Assets to Debt Ratio.
 
Qus:9 Indicate which ratio would be used by a Long-Term creditor who is interested in determining whether his claim is adequately secured ?
 
Ans:9 Debt-Equity-Ratio.
 
Qus:10 What will be the Operating profit, If operating Ratio is 78% ?
 
Ans:10 100-78=22%
 
Qus:11 The Debaters turnover Ratio of a company is 6 times. State with reasons whether the ratio will Improve , decrease, or not change due to increases in the value of closing stock by Rs. 50,000?
 
Ans:11 No change because it will neither affect net credit sales nor average receivable.
 
Qus:12 What will be the impact of ‗ Issue of shares against the purchase of fixed assets ‗ on a debt Equity ratio of 1:1 ?
 
Ans:12 Debt-equity ratio will decrease because the Long-term loans remain unchanged where as the Shareholders funds are increased by the amount f share capital issued .
 
Qus:13 State one transaction involving a decrease in Liquid ratio and no change in current ratio.
 
Ans:13 Purchase of goods for cash .
 
Qus:14 Assuming that the Debt Equity Ratio is 2:1. State giving reason , whether the ratio will improve, decline or will have no change in case bonus shares allotted to equity shareholders by Capitalizing profits.
 
Ans:14 Debt equity ratio will not change as the total amount of shareholders funds will remain same.
 
Qus:15 The ratio of current Assets (Rs. 9,00,000) to current liabilities is 1.5:1. The accountant of this Firm is interested in maintaining a current ratio of 2:1 by paying some part of current liabilities You are required to suggest him the amount of current liabilities which must be paid for the Purpose.
 
Ans:15 Payment of current Liabilities Rs.3,00,000.
 
Qus:16 A company has a loan of Rs.15,00,000 as part of its capital employed. The interest payable on Loan is 15% and the ROI of the company is 25%. The rate of income tax is 60%.what is the Gain to shareholders due to the loan raised by the company ?
 
Ans:16 Net gain to shareholders Rs.60,000.
 
Qus:17 Rs.2,00,000 is the cost of goods sold, inventory turnover 8 times, stock at the beginning is 1.5 Times more than the stock at the end. Calculate the value of opening & closing stock .
 
Ans:17 Closing stock = Rs.14,285.
           Opening stock = Rs.35,715.
 
Qus:18 From the given information, calculate the stock turnover ratio: sales Rs.5,00,000, Gross Profit 25% on cost , opening stock was 1/3rd of the value of closing stock. Closing stock was 30% Of sales.
 
Ans:18 Stock turnover Ratio = 4 times .
 
Qus:19 Calculate cost of goods sold from the following information: Sales Rs.12,00,000, Sales Returns Rs.80,000, operating expenses Rs.1,82,000, operating ratio 92%.
 
Ans:19 Cost of goods sold =Rs.8,48,400.
 
Qus:20 Calculate the amount of opening stock and closing stock from the following figures: Average Debt collection period 4 month stock turnover ratio 3 times. Average Debtors Rs.1,00,000 Cash sales being 25% of total sales Gross profit ratio 25% stock at the end was 3 Times that in the beginning.
 
Ans:20 Opening stock Rs. 50,000.
Closing stock Rs. 1,50,000.
 
Qus:21 (a) Calculate return on Investment from the following information : 
Net profit after Tax Rs.6,50,000.
12.5% convertible debentures Rs 8,00000.
Income Tax 50%.
Fixed Assets at cost Rs.24,60,000.
Depreciation reserve Rs.4,60,000.
Current Assets Rs. 15,00,000.
Current Liabilities Rs. 7,00,000.
 
(b) Profit before interest and tax(PBIT) Rs.2,00,000, 10% preference shares of Rs.100 each.
 
              Rs.2,00,000, 2,0000 equity shares of Rs. 10 each, Rate of tax @ 50% calculate earning pen Share(EPS).
 
Ans:21 (a) Net profit before interest Rs.14,00,000 capital employed Rs. 28,00,000 Return on investment 50%.
           (b)Earning per share Rs. 4.

Analysis of Financial Statement

&

Cash Flow Statements

Q.1   How are the various activities classified according to AS-3 (Revised) while preparing the Cash Flow Statement?

Ans. While preparing the cash flow statement according to AS-3 (Revised) the activities are classified into

        three groups :

        (i)  Operating activities    (ii) Investing activities and    (iii) Financing activities. 

Q.2   Mutual Fund Company receives a dividend of Rs.25 lakhs on a investments in another company's shares.Why is its cash in flow from operating activities for this company?

Ans. A mutual fund company is a financial enterprises and so a dividend of Rs. 25 lacs received by this company from

          its investment in units will be cash in flow from operating activities.

Q.3   Dividend by a manufacturing company is classified under which kind of activity while preparing the Cash         Flow Statement.

Ans. Dividend paid by a manufacturing company is classified under Financing activities.

Q.4   What are contingent liabilities? Mention any two examples.

Ans. The liability existences of which depends on a happening in future is known as contingent liabilities.

        Such liabilities are disclosed by way of a note.

        Examples of contingent liabilities are :

        (i) Claim against the company not acknowledge as debt.

        (ii) Uncalled liability on shares partly paid

 

Q.5 Prepare the Balance Sheet of Pyramid Ltd. as on March 31, 2008 from the following details:

 

Share Capital                   Rs.12, 00,000/-

 

Q.6 The current ratio of a company is 2:1. State giving reasons which of the following would improve, reduce or not change the ratio :
 
(1) Repayment of a Current Liability.
 
(2) Purchased goods on cash.
 
(3) Sale of office equipment for Rs.4000/- (Book Value Rs.5000/-).
 
(4) Sale of goods Rs.11000/- (Cost Rs.10000/-).
 
(5) Payment of dividend.
 
Ans. Solution:
 
Since current ratio is 2 : 1, let us assume the CA = Rs. 20,000 and CL = Rs. 10,000.
 
i) Repayment of current liability will improve Current Ratio because fall in current asset will be less than twice the fall in current liability.
 
(Suppose Rs. 5,000 are repaid out of current liability, balance would be CA = Rs. 15,000 and CL = Rs. 5,000. .-. Ratio will improve to 3 : 1)
 
ii) Purchase of goods on cash will not change the ratio, neither the total current assets nor the total current liabilities are affected since there is only a conversion of one current asset into another current asset.
 
iii) Sale of office equipment will improve the ratio because current asset (cash) will increase without any change in current liability.
 
iv) Sale of goods for Rs 11,000; cost being Rs 10,000 will improve the current ratio because current asset will increase by Rs. 1,000.
 
v) Payment of dividend will reduce the total of current assets and total of current liabilities by the same amount. Therefore, the current ratio will improve.
 
Q.7 Net credit sales for 2007-08 are Rs.3, 50000/- and Debtor turnover ratio is 8 times calculate debtor at the end if debtors in the beginning are Rs.14,000/- less than those at the end.

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Part 1 Chapter 01 Accounting For Debentures Assignment
CBSE Class 12 Accountancy HOTs Accounting for Debentures
Part 1 Chapter 02 Accounting for Partnership Basic Concepts
CBSE Class 12 Accountancy HOTs Partnership Basic Concepts
Part 1 Chapter 03 Reconstitution of a Partnership Firm Admission of a Partner
CBSE Class 12 Accountancy HOTs Admission Of A Partner
Part 1 Chapter 04 Reconstitution of a Partnership Firm Retirement/Death of a Partner
CBSE Class 12 Accountancy HOTs Death Retirement Of A Partner
Part 1 Chapter 05 Dissolution of Partnership Firm
CBSE Class 12 Accountancy HOTs Dissolution of A partnership firm
Part 1 Chapter Accounting for Not-for-Profit Organisation
CBSE Class 12 Accountancy HOTs Accounting for Not-for- Profit Organisation
Part 2 Chapter 01 Accounting for Share Capital
CBSE Class 12 Accountancy HOTs Accounting For Share Capital
Part 2 Chapter 02 Issue and Redemption of Debentures
CBSE Class 12 Accountancy HOTs Issue And Redemption of Debentures
Part 2 Chapter 03 Financial Statements of a Company
CBSE Class 12 Accountancy HOTs Financial Statements of a Company
Part 2 Chapter 04 Analysis of Financial Statements
CBSE Class 12 Accountancy HOTs Analysis of Financial Statement
Part 2 Chapter 05 Accounting Ratios
CBSE Class 12 Accountancy HOTs Accounting Ratios
Part 2 Chapter 06 Cash Flow Statement
CBSE Class 12 Accountancy HOTs Cash Flow Statement

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