COUNCIL FOR THE INDIAN SCHOOL CERTIFICATE EXAMINATIONS P-35,36, Sector VI, Pushp Vihar, New Delhi NEW DELHI ISC ACCOUNTS

Transcription

1 COUNCIL FOR THE INDIAN SCHOOL CERTIFICATE EXAMINATIONS P-35,36, Sector VI, Pushp Vihar, New Delhi NEW DELHI ISC ACCOUNTS Guidelines pertaining to Revised Schedule VI of Part I & II of Companies Act 1956 Applicable for ISC Accounts from the Eamination Year 2014 onwards.

2 FORMAT OF THE BALANCE SHEET OF A JOINT STOCK COMPANY Name of the Company... Balance Sheet as at... PART-1 BALANCE SHEET 1 Note No. Figures at the end of the current reporting period (Rupees in...) Figures at the end of the previous reporting period I. EQUITY AND LIABILITIES 1. Shareholders Funds (a) Share Capital (b) Reserves and Surplus (c) Money received against share warrants 2. Share application money pending allotment 3. Non- Current Liabilities (a) Long- term borrowings (b) Deferred ta liabilities (Net) (c) Other Long term liabilities (d) Long-term provisions 4. Current Liabilities (a) Short term borrowings (b) Trade payables (c) Other current liabilities (d) Short term provisions TOTAL II. ASSETS 1. Non- Current Assets (a) Fied Assets (i) Tangible Assets (ii) Intangible Assets (iii) Capital work-in-progress (iv) Intangible assets under development (b) Non-current Investments (c) Deferred Ta 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 TOTAL

3 In what follows, is the etent to which the students are epected to know about the items of the Revised Schedule VI ( Part I and Part II) for: Section A- Unit 3(C)- Final Account of Companies Section B- Unit 4- Section B- Unit 5- Section B- Unit 6- Financial Statement Analysis Cash Flow Statement Ratio Analysis. Certain items have been marked with **. For a few of those items marked with ** the students are required to know the meaning and the heading / sub-heading under which these items appear in the Revised Schedule VI. These items have also been indicated in the subsequent pages. However, for all items marked with ** no accounting treatment will be asked. 1. Shareholders Funds (a) Share Capital EXPLANATION AND PRESENTATION OF ITEMS UNDER THE HEADS AND SUBHEADS EQUITY AND LIABILITIES Note No. Figures at the end of the current reporting period Figures at the end of the previous reporting period I. EQUITY AND LIABILITIES 1. Shareholders Funds (a) Share Capital 1 Notes to Accounts: 1. (a) Share Capital Authorised Capital... shares of `... each Amount (`) Issued Capital... shares of `... each (of the above shares..shares are allotted as fully paid up pursuant to a contract without payment being received in cash) Subscribed Capital Subscribed and fully paid up... shares of `... each (of the above shares..shares are allotted as fully paid up pursuant to a contract without payment being received in cash) 2

4 Subscribed but not fully paid up... shares of `... each,... ` Called up Less calls in- arrear () Add Shares Forfeited A/c TOTAL Points to be noted: Equity share capital and preference share capital to be shown separately. If the authorised/issued capital is not mentioned in the question it has to be shown in the notes to accounts. However no figures will be shown as illustrated above. (b) Reserves and Surplus Note No. Figures at the end of the current reporting period Figures at the end of the previous reporting period II. EQUITY AND LIABILITIES 1. Shareholders Funds (b) Reserves and Surplus 1 The items under this head are: (i) Capital Reserve (ii) Capital Redemption Reserve** (iii) Securities Premium Reserve (iv) Revaluation Reserve ** (v) Share Option Outstanding Account ** (vi) Other Reserve ( Only General Reserve) (vii) Surplus ( Balance in Statement of Profit & Loss) Securities Premium Reserve- It shall be used to write off the items under Section 78 of the Companies Act and the balance if any will be shown under the head Reserve and Surplus. Notes to Accounts: 2 Amount (`) Securities Premium Reserve Less Discount on issue of shares written off () Surplus- Debit balance of Statement of Profit and Loss shall be shown as a negative figure under the head Surplus. The balance of Reserve and Surplus, after adjusting negative balance of surplus, if any, shall be shown under the head Reserves and Surplus even if the resulting figure is in negative. 3

5 Notes to Accounts: 3 Amount (`) Statement of P/L Less Discount on issue of shares written off () Underwriting Commission () Share Issue Epenses () Interest on calls in advance () Add interest on calls in Arrear / ( ) (c) Money received against share warrants **: A share warrant is a financial instrument which gives the holder the right to acquire equity shares specified therein at a specified date at a predetermined price. A disclosure of the money received against share warrants cannot be shown as part of share capital but included in shareholder s funds. (Students need to know only its meaning and under which heading / sub-heading this item appear in the Revised Schedule VI). 2. Share application money pending allotment**: If a company has received application money but the date of allotment falls after the B/S date, such application money pending allotment and to the etent not refundable is to be shown under this head. (Students need to know only its meaning and under which heading / sub-heading this item appear in the Revised Schedule VI) 3. Non - Current Liabilities: Those liabilities which are not classified as Current Liabilities (a) Long Term Borrowings: Borrowings mean amount taken as loan by the company. Bonds / Debentures Premium payable on redemption of debentures. Term loans from banks / other parties Fied Deposits / Public Deposits Other loans and advances (b) Deferred Ta Liability (Net) **: (Students need to know only its meaning and under which heading / sub-heading this item appear in the Revised Schedule VI). A deferred ta liability comes in to force when accounting income is more than taable income. (c) Other Long Term Liability ** (d) Long Term Provisions Provision is the amount set aside to meet future liability, the amount of which cannot be determined with reasonable accuracy. Long Term Provisions are the provisions against which the liability will arise after 12 months from the date of the B/S. Provision for employee benefits (beyond 12 months)** Other Provisions 4

6 Current Liabilities: Current Liability as defined in the Revised Schedule VI of the Companies Act, 1956 is: (i) Epected to be settled in the company s normal operating cycle; or (ii) Due to be settled within 12 months from the date of the B/S (iii) Held primarily for the purpose of being traded (iv) No unconditional right to defer settlement beyond 12 months of the B/S. An operating cycle is the time between the acquisition of assets for processing and there realisation in cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have duration of twelve months. (a) Short- term Borrowings: Are all borrowings of the company which are due for payment within 12 months from the date of the loan. Loans repayable on demand from banks Overdraft Cash Credit Loans from other (related) parties Deposits (b) Trade Payables: Amount Payable against purchase of goods or services received in the ordinary course of the business. Sundry Creditors Bills Payable (c) Other Current Liabilities: All current liabilities that are not short-term borrowings or trade payables Current Maturities of Long-Term Debt: That part of the long term debt which is due for payment within 12 months of the date of the B/S. Interest accrued but not due on borrowings: Eample- interest is payable on debentures half yearly on 30 th June and 31 st December. If the company closes its books on 31 st March, it will have to provide interest for the quarter Jan to March following the accrual concept of accounting. But since this interest along with the interest from April to June will become due for payment on 30 th June, it will be classified as interest accrued but not due. Interest accrued and due on borrowings: Interest is payable on debentures half yearly on 30 th June and 31 st December. If the company closes its books on 31 st March and interest provided in the books for June to Dec has not been paid till 31 st March, it will be classified as interest accrued and due. Income received in advance Unpaid Dividend: Dividends paid but they remain unclaimed by shareholders. Ecess application money due for refund and interest due thereon** Unpaid matured deposits and interest thereon** Unpaid matured debentures and interest thereon** Outstanding epenses Unclaimed dividend Calls-in-advance Provident Fund Payable** (d) Short Term Provisions:- Provisions against which liability is likely to arise within 12 months from the date of the B/S. Provision for employee benefits (to be settled within 12 months) ** Provision for ta Provision for epenses 5

7 Proposed Dividend Provision for doubtful debts Provision for discount on debtors Other provisions** ASSETS 1. Non-Current Assets: Those assets which are not current assets. (a) Fied Assets (i) Tangible Assets: Assets which can be physically seen and touched Land Building Plant and Equipment Furniture and Fiture Vehicles Office Equipment Others It is necessary to give the following information regarding each class or kind of fied tangible asset: a. Original cost b. Addition (purchase) c. Deductions (sale) d. Total depreciation written off or provided for up to the end of the year. (ii) Intangible Assets : Goodwill Brands / Trademark Computer software ** Mastheads (name of newspaper or magazine printed at the top of the page) and publishing titles ** Mining rights ** Copyrights and patents Recipes, formulae, models and designs ** Licenses and franchise. ** (However students need to know under which heading / sub-heading the items marked ** above appear in the Revised Schedule VI) (iii) Capital Work-in-Progress: ** (Studen ts need to know only the meaning and under which heading / sub-heading the items appear in the Revised Schedule VI). Self constructed item of property, plant and equipment (iv) Intangible Assets under development: ** (Students need to know only the meaning and under which heading / sub-heading the items appear in the Revised Schedule VI). Patents, intellectual property rights etc which are being developed by the company. 6

8 (b) Non-Current Investments: Investments which are held not with the purpose to resell but to retain them. (i) Trade Investments: Investments made by the company in shares or debentures of another company, not being its subsidiary, to promote its own trade and business. (ii) Other investments: Which are not trade investments. Investments in property ** In equity shares ** In preference shares ** In debentures ** In mutual funds ** In partnership firms ** In govt. securities ** (However students need to know the heading / sub-heading under which the items marked ** above appear in the Revised Schedule VI) (c) Deferred Ta Asset (Net): ** (Students need to know only its meaning and under which heading / sub-heading this item appear in the Revised Schedule VI). A deferred ta liability comes in to force when taable income is more than accounting income. (d) Long Term Loans and Advances: Epected to be received back in cash or in kind after 12 months from the date of the B/S. (i) Capital Advances: Advanced for acquiring fied assets (ii) Security Deposits: Deposit for electricity, telephone etc given for a period beyond 12 months. (iii) Other loans and advances Long term loan to employees Long term advance to suppliers etc (e) Other Non-Current Assets Long term Trade Receivables-** receivable 12 months from the date of the B/S if the operating cycle is less than 12 months or beyond the operating cycle if the operating cycle is more than 12 months. Others** Insurance claim receivable** Debts due by directors or other officers of the company** 2. Current Assets: Those assets which are: (i) Epected to be realised in or intended for sale or consumption in the normal operating cycle (ii) Held primarily for the purpose of trading (iii) Epected to be realised within 12 months from the date of the B/S (iv) Cash and cash equivalent. (a) Current Investments: Those investments which are held to be converted into cash within a short period, ie, within 12 months from the date of purchase of the investment. Investments in partnership firms ** In equity shares** In preference shares ** In debentures ** In mutual funds ** In govt. securities ** 7

9 Short Term Investment (to b e taken as cash equivalent while preparing Cash Flow Statement). Marketable Securities (to be taken as cash equivalent while preparing Cash Flow Statement). (b) Inventories : Refers to stock held for the purpose of trade in the normal course of the business, ie, for manufacturing or trading of goods. (i) Raw Materials (ii) Work-in-Progress (iii) Finished Goods (iv) Stock-in-Trade (v) Stores and Spares (vi) Loose Tools (vii) Goods - in Transit ** (c) Trade Receivables: Refers to the amount due on account of goods sold or services rendered in the normal course of business. It includes: Debtors Bills Receivable (d) Cash and Cash Equivalents: Balance with banks (includes bank deposits having a maturity period of more than 3 months but not eceeding 12 months from the date of the B/S) Cheques, drafts on hand Cash on hand Earmarked balances with banks (for eg for unpaid divided)* Balances with banks held as margin money.* Bank deposits with more than 12 months maturity* (e) Short-term Loans and Advances: Epected to be realised within 12 months from the B/S date or within the operating cycles, if the operating cycle is more than 12 months. Loans and advances to related parties Others (f) Other Current Assets Prepaid epenses Dividend receivable Interest accrued on investments Advance Ta 3. Contingent Liabilities and Capital Commitments: (a) Contingent Liabilities: These liabilities refer to the claims which are uncertain to arise because they are dependent on a happening in future. They are not recorded in the books of accounts but disclosed in the Notes to Accounts. Claim against the company not yet acknowledged as debt Liabilities for bills discounted Guarantee given by the company 8

10 (b) Capital Commitments A future liability for capital ependiture in respect of which contracts have been made. Uncalled amount on partly paid up shares Estimated amount of capital contracts remaining to be eecuted and not provided for (penalty). Other commitments: eg Arrears of cumulative dividend FORMAT OF STATEMENT OF PROFIT AND LOSS PART-II STATEMENT OF PROFIT AND LOSS Preparation of Part II of Schedule VI / Revised Schedule VI is ecluded from the scope of syllabus of ISC 2014 eamination. However, for the preparation of the Comparative and Common Size Income Statement (Section B- Unit 4 in the scope of syllabus of ISC 2014 eamination), the etent and format of the Statement of Profit and Loss has been modified. The modified version of the Statement of profit and Loss is as follows: Name of the Company... Statement of Profit and Loss for the year ended... Rupees in... Note No. Figures for the current reporting period Figures for the previous reporting period i. Revenue from operation ii. Other Income iii. Total Revenue (i + ii) iv. Epenses Cost of Materials Consumed Purchases of Stock-in-Trade Changes in inventories of Finished Goods, Work-in-Progress and Stock-in- Trade Employee Benefit Epenses Finance Costs Depreciation and Amortisation Epenses Other Epenses Total epenses v. Profit before Ta (iii iv) vi. Less Ta () () vii. Profit after Ta (v vi) 9

11 ITEMS UNDER VARIOUS HEADS APPEARING IN STATEMENT OF PROFIT AND LOSS Revenue from operation: Net Sales Sale of scrap Trading Commission received Cash Discount received Revenue from services Other Income: Rent received Interest and Dividend Received Profit from Sale of Fied Assets/ Investments Cost of Materials Consumed Opening Stock of Materials + Net Purchases Closing Stock of Materials Purchases of Stock-in-Trade Net Purchases Changes in inventories of Finished Goods, Work-in-Progress and Stock-in-Trade Opening Stock Closing Stock Employee Benefit Epenses Wages Salaries Staff Welfare Epenses such as canteen epenses Contribution to Provident Fund and other staff welfare funds.** Depreciation and Amortisation Epenses Finance Costs Amount of interest paid by the company on its borrowings Other Epenses Includes epenses other than the above si heads of epenses. These could be: Telephone epenses Rent and Taes Selling and Distribution Epenses Advertisement Epenses Loss on sale of Fied Assets / Investments Cash Discount allowed Bad debts Provision for bad and doubtful debts Provision for ta/ta rate 10

12 Format of Comparative Balance Sheet Comparative Balance Sheet as at 31 st March 2014 and 2013 Note No Absolute Change (Increase Decrease) % (Increase Decrease) I. EQUITY AND LIABILITIES 1. Shareholders Funds (a) Share Capital (b) Reserves and Surplus 2. Non- Current Liabilities (a) Long- term borrowings (b) Long-term provisions 3. Current Liabilities (a) Short term borrowings (b) Trade payables (c) Other current liabilities (d) Short term provisions TOTAL II. ASSETS 1. Non- Current Assets (a) Fied Assets (i) Tangible Assets (ii) Intangible Assets (b) Non-current Investment (c) Long term loans and advances 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 TOTAL 11

13 FORMAT OF COMPARATIVE STATEMENT OF PROFIT AND LOSS Comparative Statement of Profit and Loss for the years ending 31 st March 2014 and 2013 Note No Absolute Change (Increase Decrease) % (Increase Decrease) A B (A B)=C C 100 D B i. Revenue from operation ii. Other Income iii. Total Revenue (i + ii) iv. Epenses Cost of Materials Consumed Purchases of Stock-in-Trade Changes in inventories of Finished Goods, Work-in-Progress and Stock-in-Trade Employee Benefit Epenses Finance Costs Depreciation and Amortisation Epenses Other Epenses Total epenses v. Profit before Ta (iii iv) vi. Less Ta () () () () vii. Profit after Ta (v vi) Important Note: Comments on Comparative/ Common size financial statements are not a part of the scope of the syllabus. 12

14 Format of Common Size Balance Sheet Common Size Balance Sheet as at 31 st March 2014 and 2013 Note Absolute Amount No. % of Balance Sheet Total I. EQUITY AND LIABILITIES 1. Shareholders Funds (a) Share Capital (b) Reserves and Surplus 2. Non- Current Liabilities (a) Long- term borrowings (b) Long-term provisions 3. Current Liabilities (a) Short term borrowings (b) Trade payables (c) Other current liabilities (d) Short term provisions TOTAL II. ASSETS 1. Non- Current Assets (a) Fied Assets (i) Tangible Assets (ii) Intangible Assets (b) Non-current Investments (c) Long term loans and advances 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 TOTAL

15 Format of Common Size Statement of Profit and Loss Account Common Size Statement of Profit and Loss for the years ending 31st March 2014 and 2013 Note No. Absolute Amount % of Rev from Operation i. Revenue from operation ii. Other Income iii. Total Revenue (i + ii) iv. Epenses Cost of Materials Consumed Purchases of Stock-in-Trade Changes in inventories of Finished Goods, Work-in- Progress and Stock-in-Trade Employee Benefit Epenses Finance Costs Depreciation and Amortisation Epenses Other Epenses Total epenses v. Profit before Ta (iii iv) vi. Less Ta () () () () vii. Profit after Ta (v vi) RATIO ANALYSIS The formulae of a few Ratios will be affected due to the items in Revised Schedule Part I and II. These will include only those items which are to be evaluated in 1SC 2014 Eamination. The revised formulae / components and terms are as follows: (a) Liquidity Ratios: 1. Current Ratio: Current Assets Current Liabilities Current Assets = Current Investments + Inventories (ecluding Loose Tools and Spare Parts) + Trade Receivables + Cash and Cash Equivalents + Short-term Loans and Advances + Other Current Assets Current Liabilities = Short term borrowings + Trade payables + Other Current Liabilities + Short term Provisions 14

16 2. Quick Ratio / Liquid Ratio: Quick Assets Quick Liabilities OR All Current Assets- Inventories(ecluding Loose Tools and Spare Parts)- Prepaid Epenses All Current Liabilities - Bank Overdraft OR Liquid Assets Liquid Liabilities Quick Liabilities / Liquid Liabilities = All Current liabilities Bank Overdraft (b) Solvency Ratios: 1. Debt to Equity Ratio: Debt = Debt / Long Term Debt Equity / Shareholders' Funds Long Term Borrowings + Long Term Provisions Equity / Shareholders Funds = Share Capital + Reserves and Surplus Or Non Current Assets + (Current Assets Current Liabilities) - Non Current Liabilities = Non Current Assets + Working Capital- Non Current Liabilities = (Tangible Assets + Intangible Assets + Non Current Investments + Long Term Loans and Advances) + Working Capital (Long Term Borrowings + Long Term Provisions) 2. Proprietary Ratio: Shareholders Funds/ Equity Total Assets Total Assets = Non Current Assets + Current Assets = Tangible Assets + Intangible Assets + Non Current Investments + Long Term Loans and Advances + Current Investments + Inventories ( including Loose Tools and Spare Parts) + Trade Receivables + Cash and Cash Equivalents + Short-term Loans and Advances + Other Current Assets 3. Total Assets to Debt Ratio: Total Assets Debt 15

17 4. Interest coverage ratio = Net profit before interest and taes Interest (c) Activity Ratios: 1. Debtors Turnover Ratio will be replaced by Trade Receivable Turnover Ratio: = Credit Revenue from Operation Average Trade Receivable Credit Revenue from Operation = Revenue from Operation Cash Revenue from Operation Average Trade Receivables = Opening Trade Receivable 2 Closing Trade Receivable 2. Creditors Turnover Ratio will be replaced by Trade Payable Turnover Ratio: = Average Trade Payables = 3. Working Capital Turnover Ratio = Opening Trade Payable Net Credit Purchases Average Trade Payable Revenue from Operations 2 Working Capital Closing Trade Payable 4. Stock Turnover Ratio will be replaced by Inventory Turnover Ratio = Cost of Goods Sold Or Cost of Revenue from Operation Average Inventory Cost of goods sold= Opening Stock + Net Purchases + Direct Epenses Closing Stock Cost of Revenue from Operations = Revenue from Operations Gross Profit Or Cost of Material Consumed (including direct epenses) + Change in inventories of WIP and Finished Goods Opening Inventory + Net Purchases+ Direct Epenses Closing inventory Average Inventory = Or Opening Inventory Closing Inventory 2 16

18 (d) Profitability Ratios: 1. Gross Profit Ratio: Gross Profit Revenue from Operations 100 Gross Profit = Revenue from Operations Cost of Revenue from Operations/ Cost of Goods Sold Cost of Revenue from Operations = 2. Net Profit Ratio: = Cost of Material Consumed (including direct epenses) + Change in inventories of WIP and Finished Goods Or Opening Inventory + Net Purchases+ Direct Epenses Closing inventory Net Profit Revenue from Operations Operating Ratio: Net Profit = Gross profit + Other Income Indirect Epenses Ta Cost of Revenue from Operations/Cost of Goods Sold Revenue from Operations Operating Epenses 100 Operating Epenses = Employee Benefit Epenses + Depreciation and Amortisation Epenses + Selling and Distribution Epenses+ Office and Administrative Epense. 4. Operating Profit Ratio: Net Operating Profit Revenue from Operations 100 Net operating profit = Net Profit after Ta+ Non-Operating Epenses Non Operating Incomes Or Gross Profit Operating Epenses + Operating Incomes Non Operating Epenses = Non Operating Incomes = Interest on Debentures / Long Term Loans + Loss on sale of Non Current Assets Interest Received on Investment + Profit on sale of Non Current Assets 5. Earning per share: Net Profit after Ta and Preference Dividend No. of Equity Shares 17

19 SPECIMEN QUESTIONS Revised Schedule VI Question 1 Name the major heads under which the Equity & Liabilities are shown in a company s Balance Sheet prepared as per Revised Schedule VI Part I of the Companies Act. Solution: The major heads are: (i) Shareholders Funds (ii) Share Application Money pending allotment (iii) Non- Current Liabilities (iv) Current Liabilities Question 2 List the heads under the heads Shareholders Funds in a company s Balance Sheet prepared as per Revised Schedule VI Part I of the Companies Act. Solution: (a) Share Capital (b) Reserves and Surplus (c) Money received against Share Warrants Question 3 Under which heads and sub heads will you the following items appear in the Balance Sheet of a company as per Revised Schedule VI Part I of the Companies Act 1956: (i) Loose Tools (ii) Bills Receivable (iii) Debentures (iv) Patents Solution: Item Head Sub- Head Loose Tools Current Liabilities Inventory Bills Receivable Current Assets Trade Receivables Debentures Non Current Liabilities Long Term Borrowing Patents Non Current Assets Fied Assets- Intangible 18

20 Question 4 From the following particulars of Ronald Ltd., prepare its Balance Sheet as at 31 st March, 2013 (as per Revised Schedule VI of the Companies Act, 1956) along with Notes to Accounts. ` Authorised Equity Share Capital (10,000 1,00,000 Authorised 6% Preference Share Capital (1,000 1,00,000 Issued Equity Share Capital (7,000 70,000 Issued 6% Preference Share Capital (1,000 1,00,000 Subscribed Equity Share Capital (5,000 shares,` 8 called up, Calls in arrear` 3 on 100 shares) Subscribed 6% Preference Share Capital (1,000 1,00, , 5% Debentures of` 1000 each Short term loan from bank 10,000 Debtors 5,000 Provision for Doubtful Debts 200 Provision for Taation 1,000 General Reserve 4,000 Statement of P/L (Dr) 6,000 Marketable Securities 500 Solution: I. EQUITY AND LIABILITIES Shareholders Funds (a) Share Capital (b) Reserves and Surplus Non- Current Liabilities Long- term borrowings Current Liabilities (a) Short term borrowings (b) Short term provisions II. ASSETS Current Assets (a) Current Investments (b) Trade Receivables Balance Sheet of Ronald Ltd. as at 31 st March, 2013 Note No TOTAL TOTAL ,37,700 (2,000) 10,000 1, ,000 19

21 Notes to Accounts: 1. Share Capital Authorised Capital 10,000 equity shares of ` 10 each % Preference shares of `100 each Issued Capital 7,000 shares of ` 10 each % Preference shares of `100 each Amount (Rs) 1,00,000 1,00,000 2,00,000 70,000 1,00,000 1,70,000 Subscribed Capital Subscribed and fully paid up % Preference shares of `100 each Subscribed but not fully paid up 5000 equity shares of ` 10 each, `8 called up 40,000 Less calls-in-arrear (300) 2. Reserves and Surplus General Reserve 4,000 Statement of P/L (6,000) 3. Non-current Liabilities 500, 5% Debentures of ` 1000 each 4. Current Liabilities Short term borrowings Short term loan from bank 5. Current Liabilities Short term provision Provision for Ta 1,000 Provision for Doubtful Debts Current Assets Current Investments Marketable Securities 7. Current Assets Trade Receivables Debtors 1,00,000 37,700 1,37,700 (2000) 10,000 1,

22 Comparative and Common Size Financial Statements Question 5 (i) Give one use and one limitation of a Common Size Statement Solution: Use: It shows the changes in various items in relation to Revenue from Operations, Total Assets and Total Liabilities) Limitation: It eplains the percentage of each item to the total sum (Revenue from Operations, Total Assets and Total Liabilities) but does not epress the changes of the items between the two periods. (ii) From the following particulars, prepare a Comparative Balance Sheet of Rima Ltd Share Capital Fied Assets 6% Government Bonds 5% Debentures Reserves and Surplus Short Term Investment Inventories Trade payables Cash and Cash equivalents Solution: Rs 33,00,000 40,00, ,00,000 4,00,000 1,00,000 Comparative Balance Sheet of Rima Ltd.as at 31 st March 2012 and 2013 Note No Absolute Change (Increase Decrease) (Base year ) Rs 32,00, ,00,000 8,00,000 2,00,000 % (Increase Decrease) (Base year I. EQUITY AND LIABILITIES Shareholders Funds (a) Share Capital (b) Reserves and Surplus Non- Current Liabilities Long- term borrowings Current Liabilities Trade payables 33,00,000 2,00, ,00,000 14,00,000 1,00,000 (3,00,000) 2,00,000 1,00, (60) II. ASSETS Non- Current Assets (a) Fied Assets (b) Non-current Investment Current Assets (a) Current Investments (b) Inventories (c) Cash and cash equivalents TOTAL 57,00, ,00, ,00,000 4,00,000 1,00, ,00,000 2,00, (1,00,000) (2,00,000) (1,00,000) (20) (25) (50) TOTAL 57,00, ,00,

23 Question 6 (i) What is a Comparative Balance Sheet? Solution: Comparative Balance Sheet of an enterprise shows the increase / decrease in its assets, liabilities and capital in one year as compared to another year/ years. (ii) From the following particulars, prepare a Common Size Balance Sheet of Rima Ltd ` Share Capital 33,00,000 Fied Assets 40,00,000 6% Government Bonds 5% Debentures 1 Reserves and Surplus 2,00,000 Short Term Investment 4,00,000 Inventories Trade payables Cash and Cash equivalents 1,00, ` 32,00, ,00,000 8,00,000 2,00,000 Solution: I. EQUITY AND LIABILITIES Shareholders Funds (a) Share Capital (b) Reserves and Surplus Non- Current Liabilities Long- term borrowings Current Liabilities Trade payable II. ASSETS Non- Current Assets (a) Fied Assets (b) Non-current Investments Current Assets (a) Current Investments (b) Inventories (c) Cash and cash equivalents Common Size Balance Sheet of Rima Ltd. as at 31 st March 2013 and 2012 Note No. Absolute Amount % of Balance Sheet Total ,00,000 2,00, ,00,000 14,00, TOTAL 57,00, ,00,000 4,00,000 1,00, ,00,000 2,00, TOTAL 57,00,

24 Question 7 From the following particulars, (i) Prepare a Comparative Statement of Profit & Loss of Prudence Ltd. (ii) Prepare a Common Size Statement of Profit & Loss of Prudence Ltd Revenue from operations ` ` 3,00,000 Cost of materials consumed 60% of revenue from operations 50% of revenue from operations Indirect Epenses 30% of cost of materials consumed 20% of cost of materials consumed Ta Rate 40% of Net Profit before Ta 40% of Net Profit before Ta Solution: Revenue from Operations Comparative Statement of Profit and Loss for the years ending 31 st March 2013 and 2012 Note No Absolute Change (Increase / Decrease) Base Yr ,00,000 2,00,000 % (Increase / Decrease) Base Yr Less Epenses Cost of Materials Consumed Indirect Epenses Total epenses 3,00,000 90,000 3,90,000 1,50,000 30,000 1,80,000 1,50,000 60,000 2,10, Profit before Ta 1,10,000 1,20,000 (10,000) (8.33) Less Ta Profit after Ta (44,000) 66,000 (48,000) 72,000 (4,000) (6,000) (8.33) (8.33) Revenue from Operations Common Size Statement of Profit and Loss for the years ending 31 st March 2013 and 2012 Note No. Absolute Amount ,00,000 % of Rev from operation Less Epenses Cost of Materials Consumed Indirect Epenses Total epenses 3,00,000 90,000 3,90,000 1,50,000 30,000 1,80, Profit before Ta 1,10,000 1,20, Less Ta Profit after Ta (44,000) 66,000 (48,000) 72,

25 Ratio Analysis Question 8 (i) Assuming that the Debt-Equity ratio is 2, state whether this ratio would increase, decrease or remain unchanged in the following cases: Solution: (a) Issue of new shares for cash (b) Repayment of a long term bank loan. (a) Decrease (b) Decrease (ii) From the following information, calculate (a) Liquid Ratio (b) Working Capital Turnover Ratio (c) Operating Ratio (d) Net Profit Ratio Give the answer up to two decimal places. ` Cost of Revenue from Operations Operating Epenses 50,000 Revenue from Operations 8,00,000 Sales Returns 10,000 Total Current Assets 3,00,000 Total Current Liabilities 1,00,000 Total Assets 7,00,000 Closing Inventory 30,000 Prepaid Insurance 5,000 Solution: (a) Liquid Ratio = = Quick Assets Quick Liabilities 3,00,000 30,000 5,000 1,00,000 = 2,65,000 1,00,000 = 2.65:1 24

26 (b) Working Capital Turnover Ratio= = Cost of Revenue from Operations Working Capital 8,00,000 10,000 3,00,000 1,00,000 = 7,90,000 2,00,000 = 3.95 times (c) Operating Ratio= Cost of Revenue from Operations operating epenses 100 Net Revenue from Operations (d) Net Profit Ratio= 50,000 = 100 8,00,000 10,000 = 6,50, = 82.28% 7,90,000 Net Profit Net Revenue from Operations 100 = = Gross Profit-Operating epenses 100 Net Revenue from Operations 1,90,000 50, = 17.72% 7,90,000 Question 9 (i) How will you assess the liquidity of a business? Solution: The liquidity of a business is assessed by calculating its Current Ratio and Liquid Ratio. (ii) Calculate Gross Profit Ratio from the following information: Cash Revenue from Operations is 1/4 th of the total Revenue from Operations. Cash Revenue from Operations were ` 8,00,000. Credit Purchases are 1/5 th of the total purchases. Credit Purchases were ` 3,00,000. Opening Inventory ` 1,00,000. Closing Inventory was ` 40,000 more than the opening inventory. Wages ` 30,000 Carriage outward ` 10,

27 Solution: Cash Revenue = 1/4 th of the total revenue from operations = 8,00,000 So Total Revenue from Operations= 8,00,000 4 = 1 Credit Purchases = 1/5 th of the total purchases = 3,00,000 So Total Purchases = 3,00,000 5 = 1 Cost of Revenue from Operations = Net Purchases + Direct Epenses + Change in Inventory = ,000 40,000 = 14,90,000 Gross Profit = Revenue from Operations - Cost of Revenue from Operations = 1 14,90,000 = 1,10,000 Gross Profit Ratio= Gross Profit Net Revenue from Operations 100 = 1,10, = 6.68%. Cash Flow Statement- Sample Question From the following Balance Sheets of Humility Ltd., prepare its Cash Flow Statement for the year (as per AS 3). Note No I. EQUITY AND LIABILITIES Shareholders Funds (a)share Capital (b)reserves and Surplus Non- Current Liabilities Long- term borrowings Current Liabilities (a) Trade payable (b) Short Term Provision ,00, ,00,000 50,000 32,00,000 4,00, ,000 II. ASSETS Non- Current Assets (a) Fied Assets (i) Tangible (ii) Intangible (b) Non-current Investments Current Assets (a) Current Investments (b) Trade Receivables (c) Inventories (d) Cash and cash equivalents TOTAL 57,50,000 56,40, ,50,000 50,000 10,000 50,000 4,90,000 34,60,000 40,000 30,000 40,000 8,00,000 6,70,000 TOTAL 57,50,000 56,40,000 26

28 Notes to Account 1. Reserves and Surplus: (`) (`) General Reserve 3,50,000 2,80,000 Statement of P/L 1,50,000 1,20,000 4,00, Long Term Borrowings 10% Debentures Short Term Provision Proposed Dividend 20,000 13,000 Provision for Taation 30,000 27,000 50,000 40,000 Fied Assets Tangible- P/M 39,50,000 34,60,000 Intangible Assets- Goodwill 50,000 40,000 40,00, Current Investments Marketable Securities 10,000 30,000 Additional Information: (i) The debentures were issued on (ii) Machinery costing ` 70,000 (accumulated depreciation thereon `10,000) was sold for ` 45,000. (iii) Machinery costing ` 8,00,000 was purchased during the year. (iv) Dividend of ` 11,000 was paid during the year. 27