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GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai 4000 12 TYBCOM Semester V 2016-2017 TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 1 Pankaj Pandagale , Assistant Professor of Accountancy Contents 1. Introduction to Management Accounting 2. Analysis and Interpretation of Accounts 3. Ratio Analysis and Interpretation 4. Cash Flow Statement 5.Working Capital - Concept Maximum Marks : 75 Questions to be Set : 05 Duration : 2½ Hrs. All questions are compulsory 15 Marks each Q.No. Particulars Marks 1 Objective Questions (A) Sub questions to be asked 10 and to be answered any 8 (B) Sub questions to be asked 10 and to be answered any 7 Multiple Choice/ True or False/ Match the columns/Fill in the blanks 15 2 Full Length Practical Question OR Full Length Practical Question 15 3 Full Length Practical Question OR Full Length Practical Question 15 4 Full Length Practical Question OR Full Length Practical Question 15 5 (A) Theory Question ( 8 ) (B) Theory Question ( 7 ) OR Short Notes (To be asked 05, to be answered 03) 15 Total 75 Note : Full length question of 15 Marks may be divided into two sub questions of 8 or 7 marks.

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GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 1 Pankaj Pandagale , Assistant Professor of Accountancy

Contents 1. Introduction to Management Accounting 2. Analysis and Interpretation of Accounts

3. Ratio Analysis and Interpretation

4. Cash Flow Statement

5.Working Capital - Concept

Maximum Marks : 75 Questions to be Set : 05 Duration : 2½ Hrs.

All questions are compulsory 15 Marks each

Q.No. Particulars Marks

1 Objective Questions

(A) Sub questions to be asked 10 and to be answered any 8

(B) Sub questions to be asked 10 and to be answered any 7

Multiple Choice/ True or False/ Match the columns/Fill in the blanks

15

2 Full Length Practical Question

OR

Full Length Practical Question

15

3 Full Length Practical Question

OR

Full Length Practical Question

15

4 Full Length Practical Question

OR

Full Length Practical Question

15

5 (A) Theory Question ( 8 )

(B) Theory Question ( 7 )

OR

Short Notes (To be asked 05, to be answered 03)

15

Total 75

Note : Full length question of 15 Marks may be divided into two sub questions of 8 or 7 marks.

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 2 Pankaj Pandagale , Assistant Professor of Accountancy

Introduction to Management Accounting

Accounting involves collection, recording, classification and presentation of financial data.

The word ‘Accounting’ can be classified into three categories:

(a) Financial Accounting

(b) Management Accounting and

(c) Cost Accounting

(a) Financial Accounting has come into existence with the development of large-scale business in

the form of joint-stock companies. As public money is involved in share capital, Companies Act

has provided a legal framework to present the operating results and financial position of the

company.

Financial Accounting is concerned with the preparation of Profit and Loss Account

and Balance Sheet to disclose information to the shareholders. Financial accounting is

oriented towards the preparation of financial statements, which summarises the results of

operations for select periods of time and show the financial position of the business on a

particular date. Financial Accounting is concerned with providing information to the external

users. Preparation of financial statements is a statutory obligation. Financial Accounting is

required to be prepared in accordance with Generally Accepted Accounting Principles and

Practices. In fact, the corporate laws that govern the enterprises not only make it mandatory to

prepare such accounts, but also lay down the format and information to be provided in such

accounts. In sharp contrast, management accounting is entirely optional and there is no standard

format for preparation of the reports.

(b) Management Accounting is a new approach to accounting. The term Management Accounting

is composed of two words — Management and Accounting. It refers to Accounting for the

Management. Management Accounting is a modern tool to management. Management

Accounting provides the techniques for interpretation of accounting data. Here, accounting

should serve the needs of management. Management is concerned with decision-making. So, the

role of management accounting is to facilitate the process of decision-making by the

management.

Managers in all types of organizations need information about business activities to plan,

accurately, for the future and make decisions for achieving the goals of the enterprise.

Uncertainty is the characteristic of the decision-making process. Uncertainty cannot be

eliminated, altogether, but can be reduced. The function of Management Accounting is to reduce

the uncertainty and help the management in the decision making process. Management

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 3 Pankaj Pandagale , Assistant Professor of Accountancy

accounting is that field of accounting, which deals with providing information including financial

accounting information to managers for their use in planning, decision-making, performance

evaluation, control, management of costs and cost determination for financial reporting.

Managerial accounting contains reports prepared to fulfill the needs of managements.

Different authorities have provided different definitions for the term ‘Management Accounting’.

Some of them are as under:

“Management Accounting is concerned with accounting information, which is useful to the

management”. —Robert N. Anthony

“Management Accounting is concerned with the efficient management of a business through

the presentation to management of such information that will facilitate efficient planning and

control”. —Brown and Howard

“Any form of Accounting which enables a business to be conducted more efficiently can be

regarded as Management Accounting” —The Institute of Chartered Accountants of England

and Wales The Certified Institute of Management Accountants (CIMA) of UK defines the term

‘Management Accounting’ in the following manner:

“Management Accounting is an integral part of management concerned with identifying, presenting and

interpreting information for:

(1) Formulating strategy

(2) Planning and controlling activities

(3) Decision taking

(4) Optimizing the use of resources

(5) Disclosure to shareholders and others, external to the entity

(6) disclosure to employees

(7) safeguarding assets”.

From the above definitions, it is clear that the management accounting is concerned with that

accounting information, which is useful to the management. The accounting information is rearranged in

such a manner and provided to the top management for effective control to achieve the goals of business.

Thus, management accounting is concerned with data collection from internal and external

sources, analyzing, processing, interpreting and communicating information for use, within the

organization, so that management can more effectively plan, make decisions and control operations.

The information to be collected and analysed has been extended to its competitors in the industry.

This provides more meaningful clues for proper decision-making in the right direction.

The information in the management accounting system is used for three different purposes:

(A) Measurement

(B) Control and

(C) Decision-making

What is the Role of Management Accountant?

Role of Management Accountant in Decision making Management Accountant plays a very important role in managerial decision making. Following is the role

of a Management Accountant.

1. Collection of information :

Managerial decisions are based on information. The Management Accountant has to

collect the information from internal and external sources and makes it available to the

management.

2. Evaluation of information :

All the information collected may not be needed by the management. The management

Accountant has to evaluate the information and supply the needed information only.

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 4 Pankaj Pandagale , Assistant Professor of Accountancy

3. Interpretation of information :

The Management Accountant has to analyse and interpret the information and give his

opinion about the decision to be taken.

4. Reporting of information :

The Management Accountant has to prepare reports to supply information to the

management. The information helps the management in understanding implications of the various

decisions.

5. Controller :

The management accountant plays the role of a controller. As a controller he has to

(i) Supervise all accounting records.

(ii) Prepare interpretation of financial statements.

(iii) Compile cost of distribution.

(iv) Compile cost of production.

(v) Costing of inventories.

(vi) Supervise all matters relating to taxation.

(vii) Preparation and interpretation of statistical reports.

(viii) Exercise control through budgetary control.

(ix) Issue of standard practices relating to accounting matters.

(x) Maintain adequate records.

Describe the functions of Management Accounting?

Objectives / Functions of Management Accounting The primary objective of Management Accounting is to maximize profits or minimize losses. This is done

through the presentation of statements in such a way that the management is able to take corrective policy

or decision. The manner in which the Management Accountant satisfies the various needs of management

is described as follows:

(1) Storehouse of Reliable Data:

Management wants reliable data for Planning, Forecasting and Decision-making.

Management accounting collects the data from various sources and stores the information for

appropriate use, as and when needed. Though the main source of data is financial statements,

Management Accounting is not restricted to the use of monetary data only. While preparing a

sales budget, the management accountant uses the past data of the products sold from the

financial records and makes projections based on the consumer surveys, population figures and

other reliable information to estimate the sales budget. So, management accounting uses

qualitative information, unlike financial accounting, for preparing its reports, collecting and

modifying the data for the specific purpose.

(2) Modification and Presentation of Data:

Data collected from financial statements and other sources is not readily understandable

to the management. The data is modified and presented to the management in such a way that it is

useful to the management. If sales data is required, it can be classified according to product,

geographical area, season-wise, type of customers and time taken by them for making payments.

Similarly, if production figures are needed, these can be classified according to product, quality,

and time taken for manufacturing process. Management Accountant modifies the data according

to the requirements of the management for each specific issue to be resolved.

(3) Communication and Coordination:

Targets are communicated to the different departments for their achievement.

Coordination among the different departments is essential for the success of the organisation. The

targets and performances of different departments are communicated to the concerned

departments to increase the efficiency of the various sections, thereby increasing the profitability

of the firm. Variance analysis is an important tool to bring the necessary matters to the attention

of the concerned to exercise control and achieve the desired results.

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 5 Pankaj Pandagale , Assistant Professor of Accountancy

(4) Financial Analysis and Interpretation:

Management accounting helps in strategic decision making. Top managerial executives

may lack technical knowledge. For example, there are various alternatives to produce. There is

always a choice for the sales mix. Management Accountant gives facts and figures about various

policies and evaluates them in monetary terms. He interprets the data and gives his opinion about

various alternative courses of action so that it becomes easier to the management to take a

decision.

(5) Control:

It is absolutely essential that there should be a system of monitoring the performance of

all divisions and departments so that deviations from the desired path are brought to light, without

delay and are corrected then and there. This process is termed as control. The aim of this function

‘control’ is to facilitate accomplishment of the goals in an efficient manner. For the discharge of

this important function, management accounting provides meaningful information in a systematic

and effective manner. However, the role of accountant is misunderstood. Many consider the

accountant as a controller of their performance. Many accountants themselves misunderstand

their own role as controllers. The real role of control is effective communication and assist the

managers in achieving their goals, as efficiently as possible.

(6) Supplying Information to Various Levels of Management: Every level of management requires information for decision-making and policy

execution. Top-level management takes broad policy decisions, leaving day-to-day decisions to

lower management for execution. Supply of right information, at proper time, increases efficiency

at all levels.

(7) Reporting to Management: Reporting is an important function of management accounting to achieve the targets. The

reports are presented in the form of graphs, diagrams and other statistical techniques so as to

make them easily understandable. These reports may be monthly, quarterly, and half-yearly.

These reports are helpful in giving constant review of the working of the business.

(8) Helpful in taking Strategic Decisions: There are complicated decisions in respect of make or buy, discontinuance of a product

line, exploring new market areas etc. In the absence of systematic accounting information, it is

difficult to take decisions on such vital areas.

Explain the different types of information.

There are three types of information as given below:

1. Strategic information

This information is used by senior management to plan the objectives of the organsation and to

assess whether the objectives are being met in practice. Such information relates to overall

profitability, segment profitability, capital equipment requirements and so on.

It has the following features:

a. It is obtained from internal and external sources.

b. It is summarized at top level.

c. It is related to long term planning.

d. It is quantitative and qualitative.

e. It is prepared on ‘ad hoc’ basis.

2. Tactical information

This type of information is used by middle management. It is used to decide about utilization of

resources and their employment. It relates to productivity, budgetary control, variance analysis

reporting cash flow etc. It has the following features:

a. It is generated internally.

b. It is summarized at a lower level.

c. It is relevant to short term and medium term planning.

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 6 Pankaj Pandagale , Assistant Professor of Accountancy

d. It is based on quantitative measures.

3. Operational information

This type of information is used by lower level management. The information is used to ensure

that the specific tasks are carried out in a proper manner. This information may be required daily

or weekly or urgently. It has the following features:

a. It is obtained from internal sources.

b. It is detailed information.

c. It is prepared frequently.

d. It is quantitative.

Distinguish between Financial Accounting and Management Accounting

Point of distinction Financial Accounting Management Accounting

1. Object The object is to record various

transactions in order to find out

profit/loss and financial position of

the organisation.

The object is to help the management

in formulation of policies and

strategies.

2. Nature It is concerned with historical data. It is concerned with projection of

data for the future.

3. Subject Matter It is concerned with analysis of the

results of the organisation as a

whole.

It is concerned with analysis of

results of different units or

departments.

4. Compulsion It is compulsory It is not compulsory

5. Precision It records only the actual figures. It

gives more emphasis on precision.

It does not lay emphasis on actual

figures. It is less precise as compared

to financial accounting.

6. Reporting Reports are useful to outsiders like

Bankers, investors, shareholders,

government etc.

Reports are useful to different levels

of management.

7. Monetary/ Non-

Monetary

It records only monetary

transactions or events.

It records monetary as well as non-

monetary events.

8. Speed of reporting The speed of reporting is slow but

accurate.

The speed of reporting is fast and

approximate.

9. Accounting

Principles

It is governed by GAAP It is not governed by any set

principles.

10. Publication Financial accounts are published

for the benefit of public.

Management accounting statements

are not published. They are for

internal use.

11. Period Financial accounts are prepared for

a certain period, at the end of

accounting year.

Reports are prepared as and when

required. The frequency of reporting

is much higher as compare to

financial accounting.

12. Audit Financial accounts are audited. It is

mandatory.

Statements under management

accounting are not audited. It is not

mandatory.

Theory Questions

1. What is management accounting? What is its nature?

2. Explain the function of a management accountant.

3. Explain the role of a management accountant in decision making.

4. Distinguish between Financial Accounting and Management Accounting

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 7 Pankaj Pandagale , Assistant Professor of Accountancy

Fill in the Blanks with proper word / words

1. Management Accounting is useful in increasing Profitability.

2. Financial Accounting deals with historical data.

3. Management Accounting is Future oriented.

4. Management Accounting is Analytical nature.

5. Management Accounting includes budgetary control.

6. There is no legal format for Management Accounting Reports.

7. In Management Accounting publication of Reports is Optional.

8. Cost Accounting includes Determination of cost.

9. Inventory control is included in Management Accounting.

Interview Questions

Q.1. What is Management Accounting?

Ans. Any form of accounting, which helps the management in decision-making process is Management

Accounting.

Q.2. What is the need of Management Accounting to Management?

Ans. Basic function of management is decision-making. Management Accounting helps the management

in the process of decision-making.

Q.3. Do you consider Management Accounting is superior to Financial Accounting?

Ans. No, both Management Accounting and Financial Accounting have their own individual roles to

play. Financial Accounting provides basic input information. Management Accounting can be well

compared to expert tailoring. An experienced tailor shapes the cloth to the required pattern of his choice,

removing the unwanted portions of cloth. In a similar manner, Management Accounting provides

information in a convenient format to facilitate decision making process of management. For Financial

Accounting, format is more important, while content is more important to management accounting, with

purpose specific approach.

Match the column with most appropriate choice and rewrite.

Group A Group B

a) Financial accounting i) Future oriented

b) Management Accounting ii) Optional

c) Report of Management iii) Mandatory

d) Report of Financial Account iv) Function of Management A/c

e) Collection of Data v) Technique of Management

f) Budgetary Control vi) Technique of Management A/c

g) Standard costing vii) Historical data

viii) Management Accounting

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 8 Pankaj Pandagale , Assistant Professor of Accountancy

Study of Financial Statement Introduction : Government legislations require certain organizations like limited companies, public utilities, and

co-operative to maintain proper account and draw financial statement. Public can understand from the

financial statement the extent to which a company is discharging its social responsibilities. While issuing

shares bonds, financial statement become necessary as prospective investors can judge whether to by the

share or bonds, from the information regarding the financial soundness, gathered from the financial

statement. Workers union may study the financial statement and ascertain whether they can enforce their

demand. Whiten an organization also, financial statement assist the management in taking various

decisions. Consumer, all over the world, are becoming increasingly aware of their right and are using

financial statement extensionally today to find out the degree of exploitation by the industries. Tax

legislature makes it obligatory on the part of business entities to draw fair and objective financial

statement. The financial statement serves as instruments to regulate equity and debentures issued by

companies.

Purposes and Objectives of Financial Statements Financial statements are very useful as they serve varied affected group having a economic

interest in the activities in the business entity. Let us analyse the purpose served by financial statement.

a) The basic purpose of financial statement is communicated to their interested users,

quantitative and objective information are useful in making economic decisions.

b) Secondly, financial statements are intended to meet the specialized needs of conscious

creditors and investors.

c) Thirdly, financial statements are prepared to provide reliable information about the earning of

a business enterprise and it ability to operate of profit in future. The users who are interested in this

information are generally the investors, creditors, suppliers and employees.

d) Fourthly, financial statements are intended to provide the base for tax assessments. e) Fifthly,

financial statement are prepare in a way a provide information that is useful in predicting the future

earning power of the enterprise.

f) Sixthly, financial statements are prepares to provide reliable information about the changes in

economic resources.

g) Seventhly, financial statements are prepares to provide information about the changes in net

resources of the organization that result from profit directed activities.

Thus, financial statement satisfy the information requirements of a wide cross-section of the society

representing corporate managers, executives, bankers, creditors, shareholders investors, labourers,

consumers, and government institution.

a) Executives : Financial statements provide sufficient accounting information to the executives and

managers to enable them to decide on important issues facing them. The common issues facing

corporate managers to-day, like efficient capital utilization, maintaining the profitability though

cost control, dividend paying capacity of the company and observing credit standards, can be

tackled effectively, if the executives have a proper understanding of analysis of the financial

statement.

b) Bankers : Bankers take precautions before advancing loans to their constituents. Every banker,

before sanctioning credit, wishes to be assured the borrower‘s ability to repay the loans when they

become due; to ascertain the company‘s ability to pay interest charges on loans and their respective

due dates. Therefore, they scrutinize and study the financial statements in depth and analyse them to

ascertain the borrower‘s liquidity, solvency, profitability of his business and his financial strength.

c) Trade Creditors : Credit facilities mass distributors of goods produced but a manufactures or a

wholesalers would not provide credit facilities indiscreetly to everyone. Before opening an account of

the trader concerned, the manufacturer and wholesaler studies the financial statements of the trader,

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 9 Pankaj Pandagale , Assistant Professor of Accountancy

supplemented by various trade and bank references, to ascertain his creditworthiness. This

information could be obtained from the financial statement.

d) Shareholders and Prospective Investors : Shareholders, who have permanent interest in the life

and operations of the company, are ever desirous of knowing about their company‘s year to

shareholders are particularly interested in the future of the company. The financial statements provide

the share-holders all the information they require. What is said for the shareholders holds equally

good for the prospective investors.

e) Labourers : Labourers contribute to the earnings of the company and they are the people who

work on raw materials with the aid of capital goods to produce wealth. They are also interested in

their wages and salaries, bonus and working conditions. As far as bonus, working conditions and

other incentives are concerned, they largely depend on the company‘s profitability and liquidity. The

labourers are also interested in the business as a ‗going concern‘ as it only ensures their permanent

employment.

f) Consumers and society : Consumers attempt to find out whether they are being exploited by the

producers. Society is interested in an enterprise‘s that result in the increase of employment

opportunities, wealth and standard of living of the people. They are also concerned about the

enterprise‘s contribution to social welfare, environment and national wealth and prestige. Study of

financial statements enables the consumers and the society to gain knowledge on these matters.

Nature of Financial Statements Financial statements are plain statements based on historical recorded facts and figures. They are

uncompromising in their objectives, nature and truthfulness. They reflect a judicious combination of

recorded facts, accounting principles, concepts and conventions, personal judgements and sometimes

estimates.

Thus, financial statements are affected by three factors i.e., recorded facts, accounting conventions and

personal judgements.

a) By recorded facts is meant the data contained in statements which have already recorded in accounting

records. Example: Cash in hand and at bank, cost of fixed assets, amounts due from customers and due to

suppliers of goods are all recorded facts represented numerically. b) Financial statements are prepared by

adhering to certain concepts and established conventions.

c) In agreement with the recorded facts and accounting concepts and conventions, the role of personal

judgements, estimates and opinions, are to be emphasised especially when two or more alternative

procedures are available and which are equally acceptable. Example: an asset could be depreciated under

several methods, and inventory could be valued under different methods. Under such circumstances,

personal opinion and judgement play an important role as to which of the methods are in closer

conformity with the accounting standards and concepts in a particular circumstance or case.

Characteristics of Financial statements a) Internal Audience : financial statements are intended for those who have an interest in a given

business enterprise. They have to be prepared on the assumption that the user is generally familiar with

business practices as well as the meaning and implication of the terms used in that business.

b) Articulation : The basic financial statements are interrelated and therefore are said to be ‗articulated‘.

Example : Profit and Loss account shows the financial results of operations and represents an increase or

decrease in resources that is reflected in the various balances in the balance sheet.

c) Historical Nature : Financial statements generally report what has happened in the past. Though they

are used increasingly as the basis for the future by prospective investors and creditors, they are not

intended to provide estimates of future economic activities and their effect on income and equity.

d) Legal and economic consequences : Financial statements reflect elements of both economics and law.

They are conceptually oriented towards economics, but many of the concepts and conventions have their

origin in law. Example : Conventions of disclosure and materiality

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 10 Pankaj Pandagale , Assistant Professor of Accountancy

e) Technical Terminology : Since financial statements are products of a technical process called

―accounting‖, they involve the use of technical terms. It is, therefore, important that the users of these

statements should be familiar with the different terms used therein and conversant with their

interpretations and meanings.

f) Summarization and Classification : The volume of business transaction affecting the business

operations are so vast that summarization and classification of business events and items alone will enable

the reader to draw out useful conclusions.

g) Money Terms : All business transactions are quantified, measured and related in monetary terms. In

the absence of this monetary unit of measurement, financial statements will be meaningless.

h) Various Valuation Methods : The valuation methods are not uniform for all items found in a Balance

Sheet. Example : Cash is stated at current exchange value; Accounts receivable at net realizable value;

inventories at cost or market price whichever is lower; fixed assets at cost less depreciation.

i) Accrual Basis : Most financial statements are prepared on accrual basis rather than on cash basis i.e.,

taking into account all incomes due but not received, and all expenses due but not paid.

j) Need for Estimates and judgement : Under more than one circumstance, the facts and figures to be

presented through financial statements are to be based on estimates, personal opinions and judgements.

Example : Rate of depreciation, the useful economic life of a fixed asset, provision for doubtful debts are

all instances where estimates and personal judgements are involved.

k) Verifiability : it is essential that the facts presented through financial statements are susceptible to

objective verification, so that the reliability of these statements can be improved.

i) Conservatism : Wherever and whenever estimates and personal judgements become essential during

the course of preparation of financial statements, such estimates, should be based moderately on a

conservative basis to avoid any possibility of overstating the assets and incomes.

Qualities of Ideal Financial Statements

Financial statements, to serve the purposes of different users, have to be well prepared and presented. The

following qualities are recognised as essential for ideal financial statements: a) Clarity

b) Intelligibility

c) Objectivity

d) Emphasis on materiality

e) Precision and brevity

f) Systematic classification of heads and items

g) Consistency.

PREPARATION OF FINANCIAL STATEMENTS Let us now see the contents of financial statements and the methodology of constructing

them.

Financial Statements : Financial statements consist of Revenue Account‘ and Balance Sheet‘.

Revenue Account refers to Profit and Loss Account‘ or Income and Expenditure Account‘ or simply

Income Statement‘. Revenue Account may be split up or divided into Manufacturing Account‘, ‘Trading

Account‘, ‘Profit and Loss Account‘ and Profit and Loss Appropriation Account‘, Revenue Account is

prepared for a period, covering one year.

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 11 Pankaj Pandagale , Assistant Professor of Accountancy

Objects of preparing Revenue Accounts : Manufacturing Account is prepared to find out the total Cost of Goods Manufactured‘ in the

period. It will also reveal the cost of material consumed, labour and other manufacturing expenses or

costs.

Trading Account is prepared to ascertain the trading result i.e. gross profit or gross loss made on sale of

goods.

Profit and Loss Account is prepared covering the same period to ascertain the net profit or net

loss during the year under review, from the usual business.

Profit and Loss Appropriation Account is prepared wherein all other items of expenses and

appropriations are reflected to reveal the net profit or net loss. Generally this includes items related to

earlier years or charge of interest or salary payable to proprietor or partners. Sole proprietary concerns,

partnership firms and companies prepare the above mentioned accounts. In case of companies, the

Revenue Account i.e. profit and loss account is to be prepared taking note of the requirements of Revised

Schedule VI Part II to the Companies Act refers to profit and loss account only.

Manufacturing Account : A manufacturing concern may prepare the Manufacturing Account‘ and Trading Account‘ is

prepared separately. But in small manufacturing concerns, only one combined account known as

Manufacturing and Trading Account‘ may be prepared. The distinction between a Trading Account and a

Manufacturing Account is that a Manufacturing Account deals only with all costs and expenses of

manufacture. Trading Account deals only with finished goods and expenses relating to them showing the

cost of manufacture. Finished goods are those goods which are ready for sale. Such goods may be

manufactured in the concern or may be purchased from outside. The cost of goods manufactured as

shown by the Manufacturing Account, is transferred to the Trading Account.

The purpose of preparing the Manufacturing Account, as already mentioned, is to ascertain the

cost of goods manufactured. It should, therefore, include all the expenses relating to manufacture of

goods, i.e. purchase of raw materials, i.e. expenses such as carriage, freight etc. and all others expenses

incurred to convert raw materials into finished goods.

To give a clear idea the elements of cost are enumerated under various heads like prime cost,

factory cost etc. Manufacturing or Production A/c is prepared to describe the various elements of cost in

creating the finished goods.

Cost Elements : There are three major elements of production cost viz.

a) Direct materials,

b) Direct labour, and

c) Factory overheads direct material and direct labour constitute ‘direct cost’ and the latter constitutes

‘indirect cost’.

a) Direct Materials :

It refers to such materials which are incorporated into the physical units of product manufactured.

It is readily and definitely ascertainable.

b) Direct Labour :

It refers to the labour performed in physical contact with the product. It is the amount of wages

paid to the workers who are engaged in converting raw materials into finished goods. It can be easily

ascertained.

c) Factory or Production overhead :

It is not easily assignable to a particular product. It is an indirect cost and includes :

i)Indirect labour (foremen, Works manager, Storekeeper etc.)

ii) Indirect materials (factory supplies)

iii) Depreciation of factory Building, Plant and machinery.

iv) Amortization of parents.

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v) Insurance on building, machinery and materials etc.

vi) Maintenance of factory, and

vii) Water, heat, light and parts used in factory.

Important point regarding Manufacturing Account : a. Stocks :

The distinguishing feature of a manufacturing concern is the type of stock held. A trading concern

holds only stock of finished goods. A manufacturing concern holds stock of materials, semi finished or

work in process as well as finished goods.

b. Direct Material consumed

It is customary to show in the Manufacturing Account, the value of raw materials

consumed for manufacturing goods during a particular period.

It is computed as follows:

Opening Stock of Raw materials xx

Add: Purchase of Raw materials xx

Add: Carriage or Freight Inwards xx

Less: Rejected or Returned Materials xx

Less: Closing stock of Raw materials xx

xx

c. Work in Process :

This represents materials put in process which is not completely converted in Finished Goods.

Opening and closing works in process are shown in the Manufacturing A/c on Debit side and Credit side

respectively. However, their figure (difference) appears on the debit side either as an addition or

deduction.

d. Sale of Scrap : In manufacturing operations there may be certain scrap which may or may not have a sale value.

In order to find out correct cost of manufacturing the goods it is necessary to credit manufacturing A/c by

the amount of scrap.

e. Factory Expenses : These expenses include for processing or manufacturing goods i.e. converting raw materials into

finished goods. These include expenses like

(1) Power and Fuel,

(2) Rent, Rates, Taxes, Insurance, Repairs and Depreciation on assets used for manufacture,

(3) Factory Stores and Spares,

(4) Factory Supervision.

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Balance sheet Balance sheet is a statement of Assets and Liabilities on a particular date. It is also called as

financial position of the business organization.

Vertical Format of Balance sheet No. Particulars Rs. Rs. Rs.

I SOURCES OF FUNDS

(1) Shareholders’ Funds / Net worth/ Proprietor’s Funds / Owned Funds

Equity share Capital/ Capital of proprietor or partner xx

Preference share capital amount subscribed / Called up xx

Less : Unpaid calls / Drawings of proprietor or partner (xx)

Add : Forfeited shares / fresh capital by Proprietor / Partner xx xx

Add Reserve and Surplus

General Reserve xx

Capital Reserve xx

Capital Redemption Reserve xx

Securities Premium xx

Dividend Equilisation Reserve xx

Investment Fluctuation Reserve xx

Workmen compensation fund xx

Insurance fund xx

Provident fund xx

Foreign Project Reserve xx

Debenture Redemption Reserve xx

Profit and Loss Account ( Cr.Balance) xx

Sinking Fund / other Fund xx xx

xx

Less: Fictitious Assets & Losses

Profit and Loss Account ( Dr. Balance) xx

Preliminary expenses xx

Underwriting expenses xx

Discount on issue of shares/ debentures xx

Issue expenses not written offf xx

Deferred revenue expenditure xx

Research and Development expenditure xx

Interest paid out of capital during construction period xx (xx) xxx

(2) Long Term Liabilities / Loan Funds

a. Secured Loans/ Long Term Borrowings

Debentures or bonds xx

Loan from Banks xx

Loan from financial institutions xx xx

b. Unsecured Loans

Public Deposits xx xx xxx

NET FUND EMPLOYED / TOTAL FUND AVAILABLE XXX

II APPLICATION OF FUND

1 Net Fixed / Non-Current Assets

A. Tangible

Land and Building xx

Leaseholds xx

Plant and Machinery xx

Furniture and Fitting xx

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Furniture and fittings xx

Vehicles xx xx

B. Intangible

Goodwill xx

Patents Rights xx

Copy Rights xx

Trade Marks and designs xx

Technical know how xx xx xxx

2 LONG TERM / NON-CURRENT INVESTMENTS

Investment in government securities/ shares/ Bonds/ Debentures xx

Less : Sinking fund / other fund / Investments xx

Investment in immovable properties xx

Investment in capital of partnership firms xx

Long term investment given xx xxx

3 WORKING CAPITAL

CURRENT ASSETS (QUICK ASSETS + NON QUICK ASSETS)

QUICK ASSETS

(a) Marketable investments (short term) xx

(b) Cash and Bank Balance xx

(c) Debtors (Net) / Trade Receivables xx

(d) Bills Receivable xx

(e) Outstanding income xx

(f) Loose Tools xx

(g) Loan and advances given xx

(h) Accrued Income xx xx

NON - QUICK ASSETS

Closing stock ( Raw Materials, W.I.P., Finished Goods, Spare Parts) xx

Prepaid Expenses xx

Advance Given xx

Prepaid Expenses, Pre payments xx

Advance for goods xx

Advance tax xx xx

TOTAL CURRENT ASSTETS XXX

Less : CURRENT LIABILITIES ( QUICK LIABILITIES + NON-QUICK

LIABILIITES)

QUICK LIABILITIES

Creditors / Trade Payable xx

Bills Payable xx

Advances Received xx

Outstanding expenses xx

Provision of Tax xx

Unclaimed dividend xx

Proposed Dividend xx

Short term Loans xx

Accrued interest (Income) xx xx

NON – QUICK LIABLITIES

Bank overdraft xx

Income received in advance ( pre received income) xx xx

TOTAL CURRENT LIABILITIES xx

NET CURRETN ASSETS OR WORKING CAPITAL XXX

TOTAL ASSETS OR TOTAL FUND EMPLOYED or Net Assets owned

(Fixed Assets + Investments + Working Capital)

XXX

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Problem No. 1.Following is the Balance Sheet of Abhijeet Ltd. as on 31st March, 2014

Present the above Balance Sheet in vertical form and show the following:

1. Net worth.

2. Borrowed Fund.

3. Capital Employed.

4. Net Block.

5. Working Capital.

6. Fictitious Assets. (Oct. 2007)

Problem No. 2. The following balances appear in the books of M/s Kadu & Bros. at 31st March, 2014. You are

required to prepare Balance sheet, in a form suitable to financial analysis.

Particulars Rs.

Cash and Bank 6,000

Land and building at cost less depreciation 40,000

Prepaid Expenses 10,000

Stock 30,000

Trade Creditors 8,000

General Reserve 14,000

Debtors 18,000

Preliminary Expenditure 3,000

Plant and Machinery at cost less depreciation 52,000

Term Loan from bank 18,000

Bank Overdraft 80,000

Capital 16,000

Profit and Loss A/c Cr. Balance 10,000

Marketable Investments 18,000

Advance Payment of Tax 16,000

(Oct. 2010)

Liabilities Rs. Assets Rs.

Equity Share Capital 3,90,000 Cash in Hand 15,000

10% Preference Share Capital 2,00,000 Cash at Bank 90,000

9% Debenture 2,50,000 Preliminary Expenses 20,000

General Reserve 60,000 Goodwill 1,00,000

Capital Reserve 50,000 Building 3,00,000

11 % Bank Loan 1,00,000 Investment (Long-Term) 2,00,000

Creditors 1,25,000 Furniture 2,50,000

Bank Overdraft 1,35,000 Plant and Machinery 3,00,000

Provision for Tax 1,40,000 Debtors 1,50,000

Proposed Dividend 30,000 Prepaid Expenses 50,000

Profit and Loss A/c 1,40,000 Stock 2,00,000

Depreciation provision 80,000 Calls in arrears (Equity) 10,000

Commission on Issue of Shares 15,000

17,00,000

17,00,000

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Probe

Problem No. 3. Trial Balance as on 31st March, 2002 is furnished to you of M/s. Pady Ltd.

Particulars Debit Rs. Credit Rs.

Debtors accounts 5,00,000 20,000

Creditors accounts 12,000 4,80,000

Cash & Bank Balance 38,000 --

Building & Provision for Dep. 1,20,000 40,000

Machinery & Provision for Dep. 6,00,000 2,80,000

Vehicles & Provision for Dep. 50,000 30,000

Stock of Finished Goods (on 1-4-2001) 30,000 --

Cost of Production 20,92,500 --

Sales -- 25,00,000

Office Expenses 20,000 --

Selling & Distribution Expenses 3,10,000 --

Prepaid and Outstanding Exps. 8,000 15,000

Advance Tax Paid 1,50,000 --

Provision for Income Tax (on 1-4-2001) -- 1,40,000

Investments (at cost) 8,40,000 --

Profit on Sale of Investments -- 15,000

Dividend Received -- 30,000

Interim Dividend 50,000 --

Equity Share Capital (Rs. 10 each) -- 8,00,000

Reserve on 1-4-2001 -- 5,00,000

Profit & Loss A/c on 1-4-2001 -- 63,000

Closing Stock of Materials & Work-in-process 92,500 --

49,13,000 49,13,000

On 31st March, 2002 stock of Finished Goods was Rs. 50,000. Provide for Income Tax at 30% of profits and

Proposed Dividend at Rs. one per share. Prepare final accounts in suitable form for analysis.

Problem No. 4.From the following Trial Balance of Jyoti Ltd. as on 31st March, 2004, prepare vertical Revenue

Statement for the year ended 31st March, 2004 & vertical Balance Sheet as on that date after making the necessary

adjustments:

Particulars Rs. Rs.

Equity Share Capital 11,00,000

Plant & Machinery 12,00,000

Sales 37,00,000

Purchases 17,00,000

Sundry Debtors 9,00,000

Sundry Creditors 8,50,000

Wages 3,50,000

Opening Stock 1,20,000

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Salaries 1,80,000

Advertisement 75,000

Telephone Charges 35,000

Furniture 2,00,000

Investments (Long Term) 5,00,000

Interest Received 40,000

Loss on Sale of Furniture 20,000

Commission 60,000

Profit & Loss A/c 1,20,000

Interim Dividend 50,000

General Reserve 1,00,000

Cash at Bank 3,20,000

Bills Receivable 2,00,000

Adjustments

Stock on 31st March, 2004 was valued at Rs. 3,00,000.

(2) Make Provision of Rs. 3,00,000 for Income Tax.

(3) Depreciate Plant & Machinery @ 20% & Furniture @ 10%.

Problem No.5. Following Trial Balance was extracted from the books of Castalloys Pvt. Ltd. for the year ended

31st Dec. 2003.

Particulars Rs. Particulars Rs.

Land & Building 90,000 Sundry Creditors 30,600

Plant & Machinery 1,65,600 Reserves 15,000

Furniture & Fittings 3,600 Profit & Loss A/c 1-1-2003 8,800

Preliminary Expenses 4,900 Bank Overdraft 11,180

Calls in arrears (at Rs. 20 per share) 2,500 Return Outwards 5,000

Cash in hand 500 Sales 3,07,800

5% Govt. Bonds (F.V. 10,000) 9,880 Share Capital 2,00,000

Bills Receivable 23,000 6% debentures 1,00,000

Delivery Van 3,000

Goodwill 16,000

Sundry debtors 20,800

Purchases 2,40,000

Advertising 2,540

Sales Return 7,000

Legal Charges 1,000

Carriage Inwards 3,700

Wages 23,200

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Rent, Rates and Insurance 2,900

Stock 1-1-2003 47,600

Prepaid Expenses 2,800

Trade Expenses 1,500

Repairs to Plant & Machinery 860

Interim Dividend paid 3,500

Salaries 2,000

6,78,380 6,78,380

You are required to prepare Profit & Loss account and Balance Sheet in Vertical Format as per Management

Accounting after taking into consideration the following adjustments:

(1) Charge 5 % Depreciation on Plant and Machinery, 7.5% on Furniture & Fittings and 20% on Delivery Van.

(2) Closing stock was Rs. 54,200 as on 31st December, 2003

(3) The Directors have proposed a final dividend of 6% on paid up share capital.

(4) Interest on Govt. Bonds and Debentures is due for the year 2003.

Problem No.6. The following balances appear in the books of M/s Laxman Ltd. as on 31st March, 2014. You are

required to prepare a Balance Sheet in the Vertical Form.

Particulars Rs. Particulars Rs.

Sundry Debtors 2,00,000 Creditors 1,50,000

Trade Investments 2,50,000 Capital Reserve 1,50,000

Bank Overdraft 1,00,000 Short term investments 50,000

Public Deposits 3,00,000 Plant and Machinery 12,00,000

Bills Payable 7,90,000 Outstanding Expenses 1,20,000

General Reserve 1,00,000 Cash and Bank 7,00,000

Bills Receivable 2,00,000 Profit and Loss A/c (Credit) 4,00,000

Vehicles 9,00,000 Stock 5,00,000

10% Preference Share Capital 8,00,000 Land and Building 12,00,000

Commission on issue of shares ( not yet w/off) 40,000 Equity share capital 16,00,000

Provision for Tax 1,00,000 Preliminary expenses (not yet w/off) 10,000

Bank Loan 3,00,000 Debentures 5,00,000

Advance Tax 3,00,000 Proposed Dividend 3,00,000

Prepaid Expenses 1,00,000 Advance to suppliers 60,000

(Mar. 2013)

Problem No.7.Following are the balances as on 31/03/2014 in the books of accounts of M/s Mangaon Machines.

You are required to prepare a Vertical Balance sheet for financial analysis from the same.

Particulars Rs.

Capital work in progress 2,80,000

15% Term loan 6,00,000

Marketable Investment 1,00,000

MVAT Payable 84,000

Land and building 8,40,000

Creditors 7,75,000

Bank Balance (Dr.Balance) 35,000

Provision for Depreciation 2,51,000

TDS ( Rent Paid) 20,000

Debtors 8,15,000

Capital 5,00,000

Plan and Machinery 4,50,000

Stock 2,70,000

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Rent received in advance 1,00,000

Preliminary expenses 10,000

Profit and Loss A/c (Cr. Balance) 4,70,00

(Oct. 2011)

Problem No.8.Following are the balances as on 31/03/2014 in the books of accounts of Ratnagiri Mango Products

Ltd. You are required to prepare a Vertical Balance sheet for financial analysis from the same.

Particulars Rs.

TDS (Staff Salaries) 25,000

Share Issue expenses 20,000

Land and Building 5,00,000

10% Debentures 3,00,000

Trade Investment 2,00,000

Creditors 8,80,000

Plant and Machinery 3,70,000

Calls in arrears 10,000

Profit and Loss A/c (Cr.Balance) 3,85,000

Patents 50,000

Stock 4,35,000

Debtors 9,25,000

Equity share Capital 5,00,000

Bank overdraft 4,20,000

(Mar. 2011)

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VERTICAL PROFIT & LOSS

Particulars Rs.

SALES

(a) Cash

(b) Credit

Less: Returns & Allowances

Net Sales

Less : Cost of Goods Sold

(a) Opening Stock (RM)

(b) Purchases (RM)

(c) Freight, Octroi, Duty

(d) Less: Closing Stock (RM) Raw Material Consumed

(e) Direct Expenses

(i) Factory Power

(ii) Wages

(iii) Other Manufacturing Expenses

(f) Depreciation

on Machinery

on Factory Building

on Patterns I Patents

(g) Opening Stock : W-I-P

(h) Less : Closing Stock : W-l-P

(i) Less : Sale Scrap

(j) Opening Stock (FG)

(k) Purchases (FG)

(I) Less : Closing Stock (FG)

Cost of Goods Sold

Gross Profit

Less : Operating Expenses

(A) Administration Expenses

Office Salaries

Office Rent, Rates and Taxes

Insurance

Electricity for Office

Printing & Stationery

Depreciation on Office Assets

Postage and Telephones

Directors Fees

Legal Expenses

Audit Fees

Repairs

Other

Administration Expanses

(B) Selling & Distribution Expenses

Salaries to salesmen

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Rent of shop, show-rooms

Depreciation on Delivery vans

Exhibition, Trade Fair

Advertisement or Publicity

Travelling Van Expenses

Sale Discount Commission

Normal Bad Debts

Selling & Distribution Expenses

(C) Finance Charges

Cash Discount

Bank Charge.

Abnormal Bad debts

Finance Charges.

Total Operating Expenses (Except Interest)

Less : Interest Paid

(a) Interest on Debentures or Bonds

(b) Interest on Loans

(c) Interest on Public Deposits

(d) Interest on Short-Term Loans

Interest Paid

Net Profit after Interest

Operating Profit

Add: Net Non-operating income

(a) Non-operating Income

(i) Dividends on Shares

(ii) Interest on Debentures, Loans etc.

(iii) Profit on Sale of Fixed Assets /Investment

(iv) Damages received

(v) Royalty , Shares Transfer Fees

Non-operating Income

(b) Less: Non-operating Expenses

(i) Loss on Sale of Fixed Assets / Investment

(ii) Damages paid due

(iii) Fine or penalty

(iv) Preliminary Expenses w/off

Non-operating Expenses

Net Non-Operating Income

Net Profit before Tax

Less: Income Tax

Net Profit after Tax

Add : Profit & Loss Balance b/d Profit Available for Appropriations

Appropriations

Sinking Funds I Reserves

Dividends Appropriations

Retained Earnings

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Problem No. 9. Following financial statement for the year ended 31st March, 2005 are submitted to you by the

accountant of Star Ltd.

Trading and Profit and Loss Account for the Year ended 31st March, 2005

Particulars

Rs. Particulars Rs.

To Opening Stock

70,000 By Sales 16,60,000

To Purchases 15,30,000 By Closing Stock 1,60,000

( - ) Returns 30,000 15,00,000

To Gross Profit

2,50,000

18,20,000

18,20,000

To Depreciation

36,000 By Gross Profit 2,50,000

To Administration Expenses

50,000 By Interest 10,000

To Selling & Distribution Expenses

24,000

To Provision for Income-tax

40,000

To Proposed Dividend

16,000

To Profit Balance

94,000

2,60,000

2,60,000

Balance Sheet as at 31st March, 2005

Liabilities Amount

Rs. Assets

Amount

Rs.

Share Capital 3,00,000 Goodwill 20,000

Profit and Loss Account 1,80,000 Cash in Hand 8,000

Proposed Dividend 16,000 Stock in Trade 1,60,000

Bank Overdraft 38,000 Sundry Debtors 1,78,500

Sundry Creditors 26,000 Land & Building 92,150

Provision for Depreciation 55,750 Plant & Machinery 1,28,600

Provision for Tax 40,000 Prepaid Expenses 1,500

Expenses on Issue of Shares 7,000

Short Term Investments 60,000

6,55,7500

6,55,750

Rearrange the above statements in a form suitable for analysis and determine Net Worth, Quick Assets,

Quick Liabilities, Operating Profit and Retained Earnings. (March, 2006)

Problem No.10. Following information regarding M/s Anvita Ltd. for the year ended 31st March, 2013 is given:

(Oct. 2013)

Particulars Rs. Particulars Rs.

Sales 20,00,000 Return inwards 50,000

Opening stock of Raw Material 1,10,000 Purchases of Raw Material 5,00,000

Staff Salaries 1,50,000 Commission allowed 5,000

Salesmen Salaries 25,000 Proposed Dividend 1,50,000

Bank Charges 10,000 Exhibition Expenses 35,000

Freight Inwards 40,000 Repairs of Computer 5,000

Office Rent and Insurance 45,000 Closing stock of Work in Progress 40,000

Debenture Interest 50,000 Wages 70,000

Loss on sale of machinery 10,000 Purchases of Finished goods 80,000

Printing and stationery 5,000 Interest received on Investment 40,000

Direct Expenses 50,000 Provision for Income Tax 2,00,000

Profit and Loss A/c (Credit) 2,40,000 Closing stock of Raw Material 80,000

Depreciation on Patterns 10,000 Sale of Scrap 20,000

Depreciation on Machinery 20,000

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Problem No. 11. Following is the Profit and Loss Account of Well-balanced Limited for the year ended 31st March,

2015. You are required to prepare Vertical Income statement for purpose of analysis.

Rs. Rs. Rs.

To Opening Stock 7,00,000 By Sales

To Purchases 9,00,000 Cash 5,20,000

To Wages 1,50,000 Credit 15,00,000

To factory Exp. 3,50,000 20,20,000

To Office salaries 25,000 Less: Returns & Allowance 20,000 20,00,000

To Office Rent 39,000 By Closing Stock 6,00,000

To Postage & Telegram 5,000 By Dividend on Investment 10,000

To Directors Fees 6,000 By Profit on sale of Furniture 20,000

To Salesman Salaries 12,000

To Advertising 18,000

To Delivery Expenses 20,000

To Debenture Interest 20,000

To Depreciation

On Office Furniture 10,000

On Plant 30,000

On Delivery Van 20,000

To Loss on Sale of Van 5,000

To Income Tax 1,75,000

To Net Profit 1,45,000

Total 26,30,000 Total 26,30,000

Problem No. 12.The following is the balance appears in the books of M/s Suman Ltd. for the year ended 31st

March, 2015. You are required to prepare Revenue Statement and Balance Sheet in Vertical form. (Oct.,2012)

Particulars Rs. Particulars Rs.

Equity Share Capital 2,25,000 Sales 8,55,000

Plant and Machinery 45,000 Debentures 50,000

Purchases 6,55,000 Interim Dividend Paid 15,000

Wages 85,000 Depreciation 15,000

Bank Overdraft 20,000 Office Salaries 15,000

Office Rent 5,000 Dividend Received 5,000

Advertisement 20,000 Goodwill 25,000

Finance Expenses 8,000 Land and Building 48,000

Income Tax 15,000 Creditors 25,000

Preliminary Expenses (Not yet w/off) 5,000 Trade Investment 75,000

Bills payable 15,000 Return to suppliers 5,000

Net Profit b/d from P.Y. 13,000 Debtors 65,000

Opening Stock 75,000 Cash 42,000

Closing stock on 31st March, 2015 is Rs.80,0000

Problem No. 13. The following information regarding Maruti car Ltd. for the year ended 31st March.2007

is given to you.

Rs.

Sales 75,00,000

Purchases 50,00,000

Opening Stock (01/04/2006) 5,00,000

Closing Stock (31/03/2007) 7,50,000

Return Inward 75,000

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Carriage Outward 57,000

Carriage Inward 50,000

Return Outward 50,000

Salesmen Salary 75,000

Advertising and Publicity 2,52,000

Salesmen Travelling Allowance 7,500

Office Salary 4,00,000

Computer Repairs and Maintenance 84,000

Rent, Rates, Taxes 4000

Printing and Stationery 400

Bad Debts 75,750

Purchase of Computer 40,000

Dividend on Shares (Cr) 10,000

Staff Welfare Expenses 44,000

Interest (Dr.) 50,000

Loss on Sales of Shares 1,25,000

Rearrange above information in Vertical Form suitable for analysis. (Oct. 2008)

Financial statement when analysed of one year are not much meaningful. In order to arrive reasonable conclusions,

financial statements should be analysed with reference to earlier years or with reference to other similar company.

For such study following tools are:

(1) Trend Analysis (2) Comparative Statement (3) Common Size Statement (4) Ratio Analysis (5) Fund flow statements (6) Cash flow statements

Trend Analysis

It is a another simplified technique of analysis of financial data. In this case, out of several years,

1st year is considered as the base year. All the figures of base year are considered as 100 and the figures of

subsequent years are expressed as a percentage of base year. Trend Analysis

This type of analysis is an important and useful technique of analysis and interpretation of financial

statement. Under this technique the ration of different items for various periods are calculate for the

company over a definite period of time say three to five years and then we can analysis trend highlighted

by this ratio Trend analysis can be done in three following way:

(i) Trend percentage,

(ii) Trend ratio,

(iii) Graphic and diagrammatic representation.

In the statement the percentage column are more relevant than the figure.

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Utility of Trend Analysis: a) It is a simple technique. it does not involve tedious calculation and required trained experts

b) It is brief method to indicate the future trend

c) It is reduces the chances of errors as it provides the opportunity to compare the percentage with

absolute figures

Trend analysis one of the important tool of analyzing the financial data. It computes the percentage

change for different variables over a long period and then makes a comparative study of them. The trend

percentage helps the analytics to study the changes that have occurred during the period. Such an analysis

indicates the progress of business by showing ups and downs in it activity.

The calculation of trend percentage involves the following steps.

1) Selection of base year.

2) Assigning a weight of 100 to be value of the variable of the base year and

3) Expressing the percentage change in value of variable from base year as shown below.

Following is the example of

Trend analysis Years

Sales

Percentage ( + ) Increase or ( -

Decrease

1980

1981

1982

1983

1984

1985

1986

20,000

35,000

28,000

30,000

35,000

14,000

22,000

100 (Base year)

175

140

150

175

70

110

Problem No. 14. Rearrange the balance Sheet in vertical form and calculate the trend percentage taking

1992 figures as 100 and briefly comment on the same.

Balance Sheet as on 31st December (Rs.in Lac)

Liabilities 1992 1993 1994 1995 Assets 1992 1993 1994 1995

Share

Capital

60 60 80 80 Building 50 60 55 80

Reserve 50 45 20 20 Goodwill 50 45 40 40

Surplus 13 32 31 40 Machinery 20 40 43 50

Debentures 10 20 20 30 Stock 05 15 25 05

Secured

Loans

12 08 10 20 Debtors 20 14 15 10

Creditors 06 08 10 03 Cash 05 01 02 15

Bank

Overdraft

01 02 08 04 Preliminary

Expenses

03 02 01 -

Other

Liabilities

01 02 02 03

153 177 181 200 153 177 181 200

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TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 26 Pankaj Pandagale , Assistant Professor of Accountancy

Problem No.15. You are furnished with the following revenue statements for the four years ended 31st

December: --

1999

Rs.

2000

Rs.

2001

Rs.

2002

Rs.

Sales 50,000 60,000 72,000 86,400

Cost of Sales 32,000 38,000 46,000 56,000

Margin 18,000 22,000 26,000 30,400

Management Exps. 3,000 3,500 4,000 4,500

Sales Exps. 5,000 6,000 7,200 8,640

Interest on Loans 3,000 4,000 5,000 6,000

Total Exps. 11,000 13,500 16,200 19,140

Profit before Dep. 7,000 8,500 9,800 11,260

Depreciation 5,000 4,500 6,000 6,500

Profit before tax 2,000 4,000 3,800 4,760

Income Tax 800 2,000 1,850 2,400

Profit after Tax 1,200 2,000 1,950 2,360

You are required to make trend analysis (absolute figures need not be shown) and comment in brief on

change in Gross Profit , Net Profit before tax. (April, 2003)

Problem No.16. A & B carrying on partnership business. Their position as on 31st March 2005, 2004&

2003 is as follows:

Prepare

Trend

Analysis

Statement

taking

earliest

year as

the base.

Writing

Balance

Sheet in

vertical

form

suitable

for

analysis

in Trend

Stat

eme

nt is

(i) Balance sheets as at 31st March :

(Rs. in

lacs)

Assets 2005 2004 2003

Fixed Assets (at cost less Depreciation) 30.00 25.00 24.00

Investment 2.00 1.00 2.00

Stock in Trade 12.00 10.00 8.00

Accounts Receivable 18.00 15.00 12.00

Loans & Advances 8.00 8.00 6.00

Cash & Bank Balances 1.00 1.00 1.00

71.00 60.00 53.00

Liabilities

Partners' Capital Accounts 35.00 30.00 25.00

Partner's Current Accounts 6.00 4.00 4.00

Bank Loans 8.00 6.00 6.00

Sundry Creditors 22.00 20.00 18.00

71.00 60.00 53.00

(ii) Summarised Income Statements for the year ended 31st March :

(Rs. in lacs)

Particulars 2005 2004 2003

Net Sales 240.00 220.00 200.00

Less : Cost of Sales 180.00 170.00 150.00

Gross Margin 60.00 50.00 50.00

Less : Operating Expences 50.00 40.00 36.00

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necessary. (April, 2006)

Problem No.17. From the following Balance Sheet, prepare Vertical balance sheet which is suitable for

analysis and calculate Trend Percentages taking 2003 as base year and comment on it. (Oct.,2006)

Particular 2005

Rs.

2004

Rs.

2003

Rs.

Share Capital 50,000 50,000 50,000

Reserve and Surplus 5,000 10,000 10,000

Secured Loan 3,00 5,000 5,000

Unsecured Loan 2,000 - 6,000

Current liabilities 5,000 5,000 4,000

65,000 70,000 75,000

Particular 2005

Rs.

2004

Rs.

2003

Rs.

Fixed Assets (Net) 40,000 45,000 50,000

Investment 5,000 7,500 10,000

Stock 7,000 6,000 5,000

Debtors 10,000 9,000 7,000

Cash 3,000 2,500 3,000

65,000 70,000 75,000

Problem No.18. On the basis of the following balances as at 31st December, 1995 extracted from the

books of Alpha Ltd. You are required to

a) From the following Trends Statements for the year 31st December, 1995, 1996 and 1997 ascertain

the missing balances.

b) Give your interpretation on the same. (April, 1998)

Particulars Balance as on

31.12.95

Trend as on

31.12.95

Balance as on

31.12.96

Trend as on

31.12.96

Balance as on

31.12.97

Trend as on

31.12.97

Rs. % Rs. % Rs. %

Fixed Assets 1,60,000 100 ? 150 ? 200

Less: Depreciation

Provision

60,000 100 ? 150 ? 250

Net Fixed Assets 1,00,000 100 ? 150 ? 170

Current Assets:

Stock 3,00,000 100 ? 120 ? 140

Debtors 4,50,000 100 ? 120 ? 160

Bank balance 1,00,000 100 ? 80 ? 110

Short term

Advances

? ? ? ? ? ?

Total Current

Assets

10,00,000 100 ? 120 ? 144

Less: Current

Liabilities

3,00,000 100 ? 110 ? 130

Working Capital ? ? ? ? ? ?

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Capital Employed ? ? ? ? ? ?

Debentures 4,00,000 100 ? 75 ? 50

Net Worth ? ? ? ? ? ?

Problem No.19.M/s Anuraj Ltd. carrying on business, furnished their position as on 31st March,

2012,2013 and 2014.

Balance Sheet as at 31st March

Particulars 2012 Rs. 2013 Rs. 2014 Rs.

Assets

Fixed Assets 30,000 25,500 43,800

Investment 13,000 13,000 18,400

Current Assets 27,000 33,200 18,900

70,000 71,700 81,000

Liabilities

Share Capital 33,000 31,350 41,000

Debentures 27,000 28,350 9,500

Liabilities for Expenses 10,000 12,000 30,800

70,000 71,700 81,100

Prepare Trend Balance Sheet in Vertical form (Oct. 2012)

Problem No.20. M/s Sudesh Ltd. carrying on Business furnishes their position as on 31st December,

2011,2012 and 2013 as under.

Liabilities 2011

Rs.

2012

Rs.

2013

Rs. Assets

2011

Rs.

2012

Rs.

2013

Rs.

Equity Share

Capital

3,00,000 3,00,000 4,00,000 Fixed Assets 3,00,000 3,00,000 4,00,000

Preference Share

Capital

2,00,000 2,00,000 2,50,000 Investments 1,00,000 1,00,000 1,00,000

General Reserve 50,000 1,00,000 1,00,000 Debtors 1,00,000 1,50,000 2,00,000

Secured Loan 1,00,000 1,00,000 50,000 Stock 50,000 1,00,000 50,000

Sundry Creditors 40,000 80,000 80,000 Advanced paid 50,000 50,000 50,000

Bills Payable 10,000 20,000 20,000 Cash 50,000 50,000 50,000

Bank 25,000 40,000 45,000

Discount on Issue

of Share

25,000 10,000 5,000

7,00,000 8,00,000 9,00,000 7,00,000 8,00,000 9,00,000

Prepare Vertical Trend Balance sheet and offer your comments on net worth and working capital.

( March, 2010)

Problem No. 21. From the following information prepare Vertical Balance Sheet for financial analysis

and Trend Analysis of Mahad Product for all the year.

Particulars 31 March, 2012

Rs.

31 March, 2013

Trend %

31 March, 2014

Rs.

Share Capital 50,000 120 70,000

Reserve and Surplus 10,000 150 20,000

Secured Loans 10,000 100 10,000

Current Liabilities 10,000 150 20,000

Fixed Assets 40,000 110 50,000

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Investments ( Long Term) 10,000 160 20,000

Stock and Debtors 25,000 120 35,000

Bank Balance 5,000 200 15,000

Do not write Comments ( March, 2011 )

Comparative Financial Statement The comparative statements are important tool of horizontal financial analysis. Financial data become

more meaningful when compared with similar data for previous period or a number of previous periods.

Such analysis helps as in forming an opinion regarding the progress of the enterprise.

Comparative statements definition: Foulke has defined these statement as ―statement of financial position of business so designed as to

provide time perspective to the consideration of various elements of financial position embodied in such

statement.‘‘ In any comparative statement columns for more than one year‘s position or working can be

drawn and figures may be provided. The annual date can be compared with similar monthly or quarterly

data can be compared with similar data for the same months or quarterly of previous years. In such

statement the figure can be shown at the following value.

a. In absolute money value

b. Increase or decrease in absolute values

c. By the way of percentages

d. By the way of common—size statement

Two comparable units can be compared regarding profitability and financial position. The two

organization may not have the identical heads of account In order to get over the difficulty, the data must

first be property set before comparison In the preparation of comparative financial statement, uniformity

is essential.

Importance of Comparative Statement:

These statements are very useful in measuring the effect of the conduct of a business enterprise over the

period under consideration. Regardless of its financial strength at a given point of time, the enterprises

must operate successfully if it hopes to continue as a going concern. The income statement measures the

effects of operation. But the progress of these operations may be viewed over number of periods by

preparing the income statement in a comparative form. Similarly the effect of operation of financial

position and the progress of a business in term of financial position can be presented by means of a

comparative balance sheet. The accounting authorities in U. S. A. have strongly recommended and

encouraged the preparation of financial statement in the comparative from Recognising the importance of

comparative financial date for two years, the Indian companies Act 1956 has made this fact compulsory

that in the balance sheet of a company the figure for the previous year should also be given to facilitated

comparison. Though the balance sheet is a useful statement, the comparative balance sheet is even more

useful for the it contains not only the data of a single balance sheet but also for the past years which may

be useful in studying the trends.

Preparation of Comparative Statements: The form of comparative balance sheet consists of two or more columns according to the number of year

we prepare the balance sheet, for the date of original balance sheet and columns for the increases or

decreases in various items.

Problem No. 22. Financial Position of Santhan Ltd. as at 31st March.

Liabilities 2013 2014

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Rs. Rs.

Equity Share Capital 2,00,000 2,50,000

10% Pref. Share Capital 2,00,000 1,50,000

Reserve Fund 80,000 1,00,000

Profit and Loss Account 1,00,000 1,50,000

12% Debentures 2,00,000 3,00,000

Creditors 1,00,000 1,20,000

Bank Overdraft 50,000 20,000

Assets

Building 3,00,000 3,20,000

Machinery 1,50,000 1,80,000

Furniture 40,000 35,000

Investment 1,00,000 1,50,000

Stock 1,50,000 2,00,000

Debtors 1,00,000 1,20,000

Bank Balance 90,000 85,000

From the above information of Santhan Ltd. as at 31st March, 2013 and 2014 you are required to

comment with the help of comparative statement, after rearranging in suitable form for analysis.

(Mar,2007)

Problem No. 23.Prepare a Comparative Revenue Statement in Vertical Form from the following details: 1

Nilkamal Ltd.

Trading, Profit and Loss Account for the year ended 31st March

Particulars 2006

Rs.

2007

Rs. Particulars

2006

Rs.

2007

Rs.

To Opening Stock 2,25,000 3,00,000 By Sales 45,00,000 60,00,000

To Purchases 22,50,000 32,10,000 By Closing Stock 3,00,000 3,60,000

To interest on Debenture 1,50,000 1,50,000 By Dividend 12,000 39,000

To Depreciation:

By Profit on Sale of

Machinery 24,000 -

Furniture 15,000 15,000

Machinery 36,000 30,000

To Administrative Expenses 2,94,000 4,41,000

To Selling Expenses 4,56,000 7,53,000

To Carriage Outward 75,000 3,15,000

To Loss by Fire - 15,000

To Wages 1,95,000 3,00,000

To Provision for Tax 5,70,000 4,35,000

To Net Profit 5,70,000 4,35,000

48,36,000 63,99,000

48,36,000 63,99,000

( October, 2008 )

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TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 31 Pankaj Pandagale , Assistant Professor of Accountancy

Problem No. 24. From the following information of Mahindra Ltd. for the year ended 31st March, 2006

and 31st March 2014, you are required to comment with the help of comparative statement after

rearranging in Vertical Form suitable for analysis. (March, 2008)

2013

Rs.

2014

Rs.

Sales 15,20,000 22,80,000

Return Inward 20,000 30,000

Opening Stock Raw Material 7,600 7,600

Purchases of Raw Material 3,90,000 5,85,000

Work in Progress Opening 10,000 10,000

Work in Progress Closing 10,000 15,000

Closing Stock Raw Material 7,600 11,400

Power 50,400 75,600

Depreciation on Machinery 70,000 1,05,000

Repairs Factory Building 40,000 60,000

Direct Labour 2,50,500 3,75,750

Selling and Distribution Expenses 1,05,400 1,58,100

Finance Expenses 70,000 70,000

Administrative Expenses 73,500 73,500

Problem No. 25. Prepare comparative Income statement & comparative balance sheet in vertical form

and offer your brief comments: (April, 2002)

Profit & Loss A/cs. For the years ended.

Particulars 31-3-13

Amount

31-3-14

Amount

Particulars 31-3-13

Amount

31-3-14

Amount

To Opening Stock 44000 40000 By Sales 190000 200000

To Purchases 84000 72000 By Closing Stock 46000 44000

To Wages 40000 36000 By Interest Received 20000 --

To Factory Expenses 32000 28000

TO Establishment Expenses. 8000 6000

To Management Expenses 2000 2000

To Selling Expenses 6000 10000

To Interest 6000 8000

To Loss on sale of Assets 2000 2000

To Provision for Taxation 22000 24000

To Net profit trf to Reserve 10000 16000

Total 256000 244000 Total 256000 244000

Balance Sheet as at

Liabilities 31-3- 31-3- Assets 31-3- 31-3-

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13 14 13 14

Equity Capital 50000 70000 Fixed Assets 70000 82000

Preference Capital 20000 -- Investments 20000 10000

Reserves 50000 68000 Current Assets Excluding Bank

Balance 100000 92000

Secured Loans 22000 24000 Bank Balance 10000 20000

Unsecured Loans 30000 -- Loans & Advance 40000 30000

Creditors 20000 25000 Preliminary Expenses 12000 10000

Outstanding

Expenses 6000 5000

Provisions 54000 50000

Unclaimed

Dividend -- 2000

Total 252000 244000 Total 252000 244000

Common Size Statement Problem No.26. Following is the Balance sheet of M/s Surendra Ltd. as on 31st March, 2013.

Balance Sheet as on 31st March, 2013

Liabilities Rs. Assets Rs.

Equity Share Capital 2,50,000 Land and Building 2,00,000

10% Preference Share Capital 1,50,000 Machinery 2,50,000

General Reserve 2,00,000 Furniture 2,00,000

8% Debentures 1,50,000 Investment 90,000

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Creditors 1,00,000 Stock 35,000

Bills payable 50,000 Debtors 50,000

Cash 40,000

Bills Receivable 30,000

Preliminary Expenses 5,000

9,00,000 9,00,000

Prepare a common-sized Balance Sheet from the above in vertical form. ( October, 2013)

Problem No.27. The following balances are extracted from the following financial statements of

Maganlal Products Ltd.

Balance Sheet as on 31st March, 2014

Particulars Rs. Particulars Rs.

Bank Loan 2,00,000 Preliminary Expenses ( Not yet w/o) 25,000

7% Preference Share Capital (Rs.100) 5,00,000 Stock (Closing) 4,00,000

Investments 2,50,000 12% Debentures 5,00,000

Trade Receivables 4,00,000 Bills Payable 1,00,000

Trade Payables 3,00,000 Land and Building 10,00,000

Goodwill 2,50,000 Equity Share Capital (Rs.10 each) 10,00,000

Bills Receivable 2,75,000 Bank Overdraft 1,50,000

Plant and Machinery 6,00,000 Cash and Cash balance 75,000

Profit and Loss A/c ( Cr.) 4,00,000 Furniture 4,00,000

Unclaimed Dividend 20,000 General Reserve 4,25,000

Prepaid Expenses 50,000 Advance Tax 2,00,000

Provision of Taxation 2,30,000 Proposed Dividend 1,00,000

You are required to prepared Balance Sheet in Vertical form suitable for analysis. ( Oct , 2015)

Problem No.28. Following is the balance sheet of Pratikraj Ltd. as on 31st March, 2014

Balance Sheet as on 31st March, 2014

Liabilities Rs. Assets Rs.

Equity Share Capital 3,00,000 Fixed Assets 4,00,000

8% Preference share Capital 2,00,000 Investments 1,50,000

General Reserve 20,000 Stock 25,000

Profit and Loss Account 50,000 Debtors 75,000

10% Debentures 1,00,000 Bills Receivable 30,000

Creditors 20,000 Cash 15,000

Bills payable 7,000 Preliminary Expenses 5,000

Outstanding Expenses 3,000

7,00,000 7,00,000

Prepare a Common – size Balance Sheet from the above in vertical form. ( Oct , 2015)

A. Match the column with most appropriate choice and rewrite.

Group A Group B

1. Calls in arrears a. Disclosed under Reserves and surplus

2. Over subscription b. Share capital + Reserves – Fictitious assets

3. Securities premium c. Own fund + loan fund

4. Proprietary fund d. Intangible fixed asset

5. Capital employed e. Fixed assets

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6. Preliminary Expenses f. Disclosed on liability side

7. Goodwill g. Fictitious assets

8. Rly sidings h. Subscribed capital more than issued capital

9. Calls in advance i. Deducted from subscribed capital

10. G.P. j. Trading profit

11. Operating Net Profit k. Profit and loss A/c balance

12. Retained earnings l. Non operating

13. Loss from speculation m. Operating

n. G.P. less operating expenses

B. Match the column with most appropriate choice and rewrite.

Group A Group B

14. An asset which has Physical existence o. Reserve Earmarked

15. An asset which has no Physical existence p. Deferred Revenue Expenditure

16. An expenditure which has no future benefits q. Unpaid Expenditure

17. Revenue expenditure pertaining to future r. Not available for dividend

18. Capital reserve s. Prepaid expenses

19. Revenue Expenditure Payable t. Fictitious Assets

20. Expenditure which is carried forward u. Intangible Assets

21. Fund v. Tangible Assets

w. Capital Expenditure

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Module

Working Capital rquirments

Format of Solution:

Statement Showing Estimate of Working Capital Rs. Rs.

A) Current Assets:

1. Stock of Raw Materials xxx

2. Stock of Work-in-Progress xxx

(a) Raw Materials xxx

(b) Wages xxx

(c) Overhead xxx xxx

3. Stock of Finished Goods xxx

4. Debtors xxx

5. Prepaid Expenses xxx

6. Cash & Bank Balance xxx

Total of Current Assets xxx

B) Current Liabilities:

1. Sundry Creditors xxx

2. Outstanding Wages / Overheads xxx xxx

Net Working Capital (A-B) xxx

Add: Provision for contingencies

(as percentage of net Working Capital) xxx

Estimated Working Capital xxx

MULTIPLE CHOICE QUESTIONS i. The total Current Assets without deducting the current liabilities (a) Gross working capital (b) Net working capital (c) Permanent working capital (d) Temporary working

capital

ii. Current Assets - Current Liabilities (a) Gross working capital (b) Net working capital (c) Permanent working capital (d) Temporary working capital

iii. When cash is received against overdraft from bank (a) There is an increase in Net working Capital (b) There is increase in Gross working Capital

(c) There is an increase in both the Gross and the Net working Capital (d) There is no effect on both the Gross and the Net working Capital

iv. The minimum amount of working capital required to enable the concern to operate at the lowest level of

activity (a) Gross working capital (b) Net working capital (c) Permanent working capital (d) Temporary

working capital

v. Permanent working capital is also known as (a) Gross working capital (b) Net working capital (c) Core working capital (d) Fixed capital

vi. When activity is at higher level, the concern needs more working capital, which is known as (a) Gross working capital (b) Net working capital (c) Permanent working capital (d) Temporary

working capital

vii. Cash working capital includes (a) Fixed assets less depreciation (b) Cost of inventory excluding depreciation (c) Cost of inventory including depreciation (d) none of the

above

viii. The amount of funds invested in current assets is called ____ (a) Gross working capital (b) Net working capital (c) Surplus capital (d) none of these

ix. Under the gross working capital concept the working capital is equal to ____ (a) total current liabilities (b) surplus current assets (c) total current assets (d) none of these

x. The term net working capital refers to _____ (a) the excess of the current assets over current liabilities (b) the liquid assets (c) the total current assets less provisions (d) none of these

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Select the correct Alternatives.

1. Working Capital is (a) Capital required to finance day to day operation (b) Capital to finance fixed assets (c) Capital working in the organisation (d) None of the

above

2. Working Capital is (a) excess of fixed assets over current assets (b) excess of current assets over current liabilites

(c) excess of share capital over loan (d) none of the above

3. Seasonal working capital is (a) permanently required (b) Fluctuating in nature (c) required to meet seasonal needs of the organisation (d) None of the above

4. Manufacturing organisation requires (a) lager working capital (b) smaller working capital

(c) moderate working capital (d) none of the above 5. Service organisation requires

(a) lager working capital (b) smaller working capital

(c) minimum working capital (d) none of the above 6. Longer the process period

(a) lesser will be the working capital (b) lager will be the working capital (c) minimum working capital (d) none of the above

7. If cash credit facility is available from bank for working capital, then working capital required is

(a) Less (b) more (c) maximum (d) none of the above (April, 2015 )

8. If expected sales are only against cash, then working capital required will be ---

(a) more (b) maximum (c) less (d) none of the above (October, 2014)

Problem 1. From the following estimate and information relating to Nirmala Products Private Ltd. Calculate

working capital requirement for the year 2011-2012.

1. Expected level of production and sale of the year – 1,80,000 units.

2. Cost per unit – Raw materials Rs.9, Direct labour Rs.4 and Overheads Rs.6.

3. Selling price per unit Rs.22.

4. Raw materials in stock on an average for 30 days.

5. Materials are in process on an average for 15 days.

6. Finished goods in stock on an average for 30 days.

7. Credit allowed by suppliers is 30 days.

8. Time lag in payment from customers is 60 days.

9. Time lag in payment of labour is 15 days.

10. Time la in payment of overheads is 30 days.

11. All the sales are on credit except 10% sales which are on cash basis.

12. Cash and Bank balance is expected to be Rs.67,000.

13. The production and sales are evenly spread throughout the year.

14. Labour and overheads accrue evenly during processing period.

15. Company works for 360 days during an accounting year.

16. Estimate debtors on cost basis. ( October, 2012 )

Problem 2. Radhika Manufacturing Limited presented the following information for 2011-12.

Estimated Yearly Production and Sales = 60,000 units.

Estimated Cost Elements per unit.

Raw Materials Rs.5

Wages Rs.3

Overheads Rs.2

Selling Price Rs.12

Further Informations :

1. The company extends two months credit to the debtors.

2. The company maintains one month’s stock of Raw materials

3. The company maintains one month’s stock of Finished goods.

4. The processing period is one month.

5. The company is allowed two months credit by suppliers.

6. Wages and overheads are paid one month in arrears.

7. The cash and bank balance is expected to be equal to Rs.25,000.

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8. There is regular purchase, production and sales cycle.

9. During production process wages and overheads accrue enenly.

10. Debtors are to be calculated on cost basis.

11. 20% of the customers pay one month in advance.

Prepare statement showing an estimate of working capital ( March , 2012 )

Problem 3. From the following information given by M/s Q & Co. Pvt. Ltd., prepare an estimate of working capital

for the year ended 31st March, 2011.

1. Estimated level activity – 1,04,000 units for the year 52 weeks.

2. Cost of Raw Materials per unit – Rs.5.

3. Cost of Labour per unit – 40% of Raw materials.

4. Cost of Overheads per unit – 50% of the Labour cost.

5. Profit per unit is 200% of Overheads.

6. Stock of Raw Materials – 4 weeks.

7. Processing period – 4 weeks.

8. Stock of Finished Goods – 4 weeks.

9. Credit to the Debtors – 6 weeks.

10. Credit by the Creditors – 4 weeks.

11. Time lag in payment of wages – 4 weeks.

12. Time lag in payment of overheads – 2 weeks.

13. Cash and Bank Balance required – Rs.40,000.

14. Debtors are calculated on Sales basis.

15. Purchases against Cash – 20%.

16. All the activities are spread evenly throughout the year.

17. During processing, Labour and Overhead accrue evenly. ( October, 2011 )

Problem 4. From the following information provided by M/s P & Co. Pvt. Ltd. prepare a statement showing

working capital requirement for the year 2010-2011.

(a) Estimated Sales for the year 2010-11 Rs.21,60,000

(b) Estimated cost structure ratios to selling price- Raw Materials 60%, Labour 20% and Overheads 10%.

(c) Selling price Rs.20 per unt.

(d) Raw Materials remain in stock for 2 months.

(e) Materials remain in process for 1 month.

(f) Finished goods remain in stock for 1 month.

(g) Customers are allowed 2 months credit.

(h) Suppliers allow 1 month credit.

(i) Time lag in payment of wages is one month.

(j) Time lag in payment of overheads is half a month.

(k) Cash and Bank Balance is excepted to be 25% of the Debtors.

(l) Provide a Margin of Safety at 10%.

(m) Debtors are to be calculated at selling price.

(n) During the manufacturing process Labour and Overhead accrue evenly. ( March , 2011 )

Problem 5. The following information is presented by Data and Sons Ltd. for year 2010-11.

Estimated Yearly Production = 30,000 units.

Estimated Cost Elements per unit.

Raw Materials Rs.5

Wages Rs.3

Overheads Rs.2

Selling Price Rs.12

Further Informations :

1. The company extends two months credit to the customers.

2. The company maintains one month’s stock of Raw materials

3. The company maintains one month’s stock of Finished goods.

4. The processing period is half a month.

5. The company is allowed one months credit by suppliers.

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6. Wages and overheads are paid one month in arrears.

7. The cash and bank balance is expected to be Rs.8,125.

8. There is regular purchase, production and sales cycle.

9. During production process wages and overheads accrue enenly.

10. Debtors are to be calculated on Sale price basis.

Prepare statement showing an estimate of working capital ( October , 2010 )

Problem 6. The Management of Kaka Ltd. has asked you to prepare an estimate showing the working capital

requirement for 2010-11, along with estimates cost sheet.

Present position : 2009-2010

Operating Capacity 40%, giving output of 40,000 units for the year:

Cost structure per unit.

Raw Materials Rs.20

Direct labour Rs.15

Overheads Rs.10

Profit Rs. 5

Estimates for the next year 2010-2011

Operating Capacity 60%

Cost Structure –

Raw Material cost to increase by 10%.

Direct Labour cost to increase by 20%

Overheads to increase by 20%

Selling Price to increase by 20%

The following further information is available:

1. The purchase , production and sales pattern is assumed be even throughout the year.

2. The Raw materials will remain in stock for 1 month.

3. The production process will take 1 month wherein labour and overheads will accrue evenly during the

process.

4. The finished goods will remain in the stock for 2 months.

5. The customers will be allowed a credit of 2 months.

6. The suppliers will allow a credit 1 month.

7. The time-lag in payment of labour will be 1 month.

8. The time-lag in payment of overheads will be half a month.

9. The cash and bank balance is expected to be Rs.25,000.

10. Calculate debtors on cost basis

11. 20% of the purchase will be on cash basis. ( April , 2010 )

Problem 7. From the following data provided by M/s. Alpha Ltd. estimate working capital requirements for the year

ended 31st March, 2009.

a) Estimated activity / operations for the year 2,60,000 units (52 weeks).

b) Raw material remains in stock for 2 weeks and production cycle takes 2 weeks.

c) Finished Goods remaining in stock for 2 weeks.

d) 2 weeks credit is allowed by suppliers.

e) 4 weeks credit is allowed to Debtors.

f) Time lag in payment of wages and overheads is 2 weeks each.

g) Cash & Bank Balance to be maintained Rs. 25,000.

h) Selling price per unit is Rs. 15.

i)Analysis of cost per unit as follows.

1. Raw material 33½% of sales.

2. Labour and overheads in the ratio of 6 : 4 per unit.

3. Profit is at Rs. 5 per unit.

Assume that operations are evenly spread throughout the year; Wages and Overheads accrue similarly.

Manufacturing process required feeding of material fully at the beginning. Degree of work-in-progress is 50%.

Debtors are to be estimated at selling price.

( April , 2006 )

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Problem 8. Finance Director of Smart Ltd intends to plan financial requirement for working capital of the company

for the coming year 2003.

The share capital of the company is Rs 10,00,000. The company also has issued 10% Debentures of Rs 1,50,000.

The fixed assets of the company are valued at Rs 3,75,000

Production in the previous year was 15,000 units. It is expected that during coming year it will be 30,000 units. The

estimated cost sheet is given below.

Particulars Rs ( Per Unit )

Raw material 60

Direct wages 10

Overheads 20

Profit 10

Selling price 100

You are further informed that

1. Raw material will be in stock for half month

2. Production cycle will take one month

3. Finished goods will remain in godwon for one month

4. All sales will be on credit basis

5. Suppliers will enjoy three months credit

6. Customers will enjoy four months credit

7. Production and sales will be evenly spread throughout the year

8. Time lag in payment of wages and overhead will be half month

You are required to prepare-

1. The estimate of working capital requirement.

2. Projected Profit and Loss Account; for coming year,

3. Projected Balance Sheet at the end of coming year, in order to find out cash requirement. (October,

2001)

Problem 9. Annual production is 96,000 units p.a Selling price Rs 50 per unit. Cost structure is as under.

Material 60%

Labour 15%

Overhead 10%

85%

Profit 15%

Selling price 100%

Following information is available

1. Materials are stored for 1 month

2. Process takes 1 month

3. Finished goods equal to 3 month production are carried in stock

4. Debtors get 2 months credit

5. Creditors allow 1 – ½ months credit

6. Time lag in payment of wages and overheads is ½ month

7. Cash and Bank balance is maintained at 10% of working capital

8. 10% of the sale are made 10% above selling price

Prepare working capital statement for the factory. ( April,

1995 )

Problem 10. Modern Carry on Ltd. manufactured and sold 1,200 T.V. sets in the year 2001. The production cost per

unit was as under:

Rs.

Materials 5,000

Labour 2,000

Overheads 1,000

Total Cost 8,000

Profit 2,000

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Selling Price 10,000

For the year 2002, it is estimated that-

1) The output and sales will be 1,800 T.V. sets.

2) Price of materials will rise by 20%.

3) Wages rate will rise by 25%.

4) Overheads will increase by 50%.

5) Selling price per unit will be Rs. 12,000.

It is also estimated that-

a) Raw Material remain in stock for half month before issue to production.

b) Finished goods will remain in godown for one month before sale.

c) All sales will be on credit and credit allowed to customers will be as follows:

i) Acceptance of Bills of Exchange for three months against 60% of sales.

ii) 40% of sales one month credit.

d) 60% for Raw materials requirements will be obtained from the suppliers from Japan by making three months

advance

payments.

e) Wages and Overheads are paid one months in Arrears.

f) Materials will be in process (valued at cost of raw Material plus 50% of Labour and Overheads) on an average for

half

month.

g) Cash on hand and with Bank should always be Rs. 50,000.

You are required to forecast Working Capital Requirements of the company. (

October, 1996 )

Problem 11. A Factory produces 84,000 units during the year and sells them @ Rs. 50 per unit. Cost structure of a

product is as follows:

Raw Materials 55%

Labour 18%

Overheads 17%

90%

Profit 10%

Selling Price 100%

The following additional information is available:

1) The activities of purchasing, producing and selling occur evenly throughout the year.

2) Raw material equivalent to 1½ months supply is stored in godown.

3) The production process takes 15 days.

4) Finished goods equal to one month’s production are carried in stock.

5) Debtors get 1 month credit.

6) Creditors allow 2 months credit.

7) Time lag in payment of wages and overheads is 1 month.

8) Cash & Bank Balance is to be maintained at 15% of working capital.

9) 25% of purchases are for cash.

Draw a forecast of working capital requirements of the factory. (

October, 1995 )

Problem 12. D.K. Ltd. provides the following information.

i) Projected Annual Material & Labour cost of Co. is Rs. 7,20,000 & Rs. 5,40,000 respectively.

ii) Cost of Sales consists of Material, Labour and Overhead Cost only.

iii) Production & Sales takes place evenly throughout the year.

iv) As per the credit policy of the Co. Debtors (at selling price) at three months credit will be Rs. 4,50,000.

However for working capital statement Investment in Debtors is to be considered at cost.

v) Raw material are in stock on an average for one month.

vi) Finished goods are in stock on an average for half a month.

vii) Credit allowed by suppliers is two months.

viii) Materials remain in process (valued at cost of Raw Materials plus 50% of Labour and Overheads) on

an average

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for one month.

ix) Company sales goods at 25% profit on cost.

x) Time lag in payment of wages and overheads in one month.

xi) Cash balance to be maintained at Rs. 1,10,000.

xii) Margin of safety @ 10%.

You are required to prepare a statement showing the Working Capital Requirement. ( October, 2003 )

Problem 13. You are required to prepare a statement showing the working capital required to finance the level of

activity of 12,000 Units per year from the following information.

1) Raw Materials are in stock on an average for 2 months.

2) Materials are in process on an average of half of a month.

3) Finished goods are in stock on an average for one month.

4) Credit allowed by the suppliers is 1½ months of purchase of raw materials and credit allowed to the customers is

months.

5) Lag in payment of wages and overheads is one month.

6) Cash and Bank Balance is expected to be 10% of Net working capital before considering the Cash and Bank

Balance.

7) Activities are spread evenly throughout the year.

Cost per unit:

Raw Material Rs. 10

Wages Rs. 5

Total Cost Rs. 30

Profit is 20% on selling price. ( October, 2008 )

Problem 14. Following information is submitted by Sairaj Chemist for the year 2002 :

Rs.

1. Total Domestic Sales 2000 kgs. @ Rs. 20/- per 100

gms,.

4,00,000

2. Export Sales 1000 kgs. 1,80,000

3. Domestic Cash Sales 500 kgs 1,00,000

4. Raw Materials cost : 30,000

a) For Export sales Rs. 60/- per kg.

b) For other Sales Rs. 50/- per kg.

5. Wages of all Rs. 50/- per kg.

6. Total Fixed Expenses 20,000

7. Other Variable Expenses 80,000

For the year 2003, it is estimated as under :

a) Domestic sales will increase by 20% but average price shall decrease by 10%.

b) Export realization will increase by 10% and quantity sold will increase by 20%.

c) Raw Materials prices for both will increase by 20%.

d) Fixed expenses will increase by 80%.

e) Variable expenses for domestic sales wil be rs. 20/- and Rs. 30/- per kg. For export sales.

f) Wages per unill wil remain unchanged.

Calculate working capital requirements for the year 2002 considering :

i) Credit for export sales 3 months, domestic sales 2 months.

ii) Raw materials available on 1 month credit for both.

iii) Inventoryt of Raw Materials 1 month for both.

iv) Inventory of Finished Goods 1.5 months for export, 1 month for domestic.

v) Process time one month.

vi) Ratio of credit sales and cash sales remains same.

vii) Wages are paid at the end of the month for full month.

viii) Fixed overheads are paid in advance for one month.

ix) Cash required is 10% of gross working capital

x) Time lag in payment of variable expenses one month. (October, 2001)

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Problem 15. Power Link Ltd. Furnishes the following information and requests you to prepare statement showing

the requirement of working capital for the year 2003

Particulars Budget for 2002

Production capacity for the year 20,000 units

Production 90%

Cost structure

Crude material Rs.30/- per unit

Other direct material Rs.20/- per unit

Wages Rs.25/- per unit

Other heads Fixed p.m. Rs.9,000/- and

Rs. 15/- variable per unit

Profit 20% on sale

Other information: 1) Crude material remains in stock for 2 months.

2) Other direct materials remains in stock for 1 month.

3) Finished gods remains in stock for 2 months. (to be valued at direct csot)

4) The production process takes place 1 months W.I.P. valuation to be made crude material plus direct materials at

cost; plus 50% of wages and variable overheads.

5) Time lag in payment of wages 1 month and variable overheads half month.

6) Fixed overheads payable quarterly in advance.

7) Crude materials purchased from suppliers against advance payment of two other direct material suppliers allows

credit of 1 month.

8) Credit allowed to customer asunder: (valued a sales price)

(a) 50% of invoice price against acceptance of bill for 4 months.

(b) 25% of invoice price time lag two months.

9) Bank Balance to be maintained Rs.50,000/-

10) Production and sales take place evenly throughout the year. (April,1997)

Problem 16. Bhaskar Ltd. is commencing a new project for manufacture of a plastic component. The following

information is available:

Cost Per Unit

Rs.

Material 40

Direct Labour and Variable Expenses 20

Variable Selling Expenses 4

The Fixed expenses are as under

Manufacturing Rs.6,000 p.m. (excluding depreciation)

Administration Rs.48,000 p.a.

Selling 20% of combined administration and selling fixed costs.

Deprecation of Machinery @ 10% p.a. on original Cost of Rs. 12,00,000.

The selling price is expected to be Rs.96.

In the first two year of operation, production and sales are planned as follows:

Production No. of Units Sales No. of Units

Year 1 6,000 5,000

Year 2 9,000 8,500

To assets the working capital requirement, the following additional data is furnished:

a) Stock of Materials – 2.25 months average consumption.

b) Work in Progress – Nil

c) Debtors – 1 month average administration and selling expenses.

d) Cash Balance – 1month administration and selling expenses.

e) Creditors for supply of material – 1 month average purchases during the year.

f) Creditors for expenses -1 month average of all expenses during the year.

g) Stock of finished goods is valued on weighted average office cost basis.

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Prepare, for the second year (year2)

i) Statement of Profit & Loss (ignoring txation) and

ii) Statement of Working Capital requirements. ( October, 1999 )

Problem No.17. Abhishek Ltd. furnished the following information and requests you to prepare a statement

showing the requirement of working capital for the year 2014-2015.

Cost Sheet for the year 2013-2014 (Level of activity of Purchases, Production and Sales 12,000 units per annum):

Rs.

Raw material per unit 250

Fixed Wages per annum 1,83,600

Variable wages per unit 80

Fixed Overheads per annum 1,62,000

Variable Overheads per unit 18

During the year 2014-2015 company expects decline of 10% in their level of activity.

Other Information:

(a) Raw materials and finished goods remain in stock, equal to 2 months requirement.

(b) Processing takes one month and it includes fixed wages and overheads full and variable wages and

overheads 40%.

(c) Selling price of the product is arrived at by calculating 25% profit on cost.

(d) 60% of the total sales are on credit of two months and balance sales are against cash.

(e) Cash balance should be maintained at 10% of net working capital.

(f) 80% of suppliers of raw materials provide credit of 2 months and balance purchases are for cash.

(g) Fixed wages and overheads are paid one month in advance.

(h) Time lag in payment of variable wages and overheads is one month.

(i) Production and sales take place evenly throughout the year.

(j) Sundry Debtors are valued at Selling Price. ( April, 2015 )

Problem No.18.Ajeet Ltd. produced and sold 60,000 Cellular Phones in the year 2013-14 and their cost structure

was as under:

Particulars Rs. ( Per Unit )

Raw material 120

Labour 90

Manufacturing Overheads 80

Administration and Selling Overheads 30

Profit 20% of Selling Price

In the year 2014-2015, they plan to produce and sale 72,000 Cellular Phones and they estimate that:

(i) Raw Materials cost per unit will reduce to Rs.100 and all overheads will increase by 10%.

(ii) Selling Price will remain unchanged.

It is further informed that:

(a) Raw Materials will be in stock on an average equal to one month’s consumption.

(b) Processing time required is ¼ month.

(c) Finished Goods in stock – ½ month’s requirement.

(d) Credit allowed by suppliers one month.

(e) Credit allowed to customers – ½ month.

(f) Time lag in payment of wages and both the overheads – one month.

(g) Cash balance required for smooth operation is expected to be Rs.75,000.

(h) Production and Sales are carried on evenly throughout the year.

(i) Provide margin of safety of 10%.

(j) Debtors are to be calculated at selling price.

(k) 40% of purchases and 60% of sales and against cash.

You are required to prepare a statement showing working capital requirement for the year 2014-2015.

(October,2014)

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Problem No.19. From the following information given by Tata Ltd estimate working capital requirement for year

ending 31st March 2014.

Estimate production 120 Nano Cars ( per year )

Particulars Per Car Rate

Steel 1000 KG Rs 70 Per KG

Spares 20 KG Rs 60 Per KG

Engine 1 Rs 20,000 per engine

Labour 50 Hrs Rs 100 per hr

Overhead Rs 20,000

1. Steel remains in stock for 2 months spares remains in stock for half month and engine remains in stock for one

month

2. Suppliers of steel allows credit of two months, suppliers of spares allow credit for one month and suppliers of

engine allows credit for half month

3. Production process takes half month

4. Time lag in payment of labour and overhead is one month

5. Car ( finished goods ) remains in stock for one month

6. Activity is spread evenly throughout the year. ( March, 2008, 2009 )

Problem No.20. From the following details prepare working capital estimate for 2014

Raw material Rs 125 per unit

Fixed wages Rs 9,00,000 per annum

Variable wages Rs 40 per unit

Fixed overheads Rs 6,60,000 per annum

Variable overheads Rs 9 per unit

Level of activity of purchase production and sales

Other information

1. Raw material stock is 1.5 Month s

2. Process time 1 month and to include fixed wages & overhead full, variable wages & overhead 40%

3. Finished goods stock 1 month

4. M.R.P of the product is arrived by calculating 20% profit on sales price

5. 25% of the sales are to wholesale given them 10% discount. Credit given to 40% wholesalers two

month against acceptance of bill and balance one month credit

6. Balance sales to retailers, Half of it on cash basis by giving 2% discount , balance half on one month credit

7. Cash required 15% of net working capital

8. For material purchase we accept bill for two month for 25% of quantity and for balance we receive credit

for 1.5 months.

9. Fixed wages are paid ½ month in advance

10. Fixed overheads are paid 1 month in advance

11. Variable wages time lag is one month

12. Variable overheads time lag is half month ( March, 2004 )

Problem No.21. A factory produces 96,000 units during the year and sells them for Rs. 50 per unit. Cost structure of

a product is as follows:

Raw Materials 60%

Labour 15%

Overheads 10%

85%

Profit 15%

Selling Price 100%

The following additional information is available:

1) The activities of purchasing, producing and selling occur evenly throughout the year.

2) Raw materials equivalent to 1 month’s supply is stored in godown.

3) The production process takes 1 month.

4) Finished goods equal to three month’s production are carried in stock.

5) Debtors get 2 month’s credit.

6) Creditors allow 1½ month’s credit.

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7) Time lag in payment of wages and overheads in half month.

8) Cash and Bank Balance is to be maintained at 10% of working capital.

9) 10% of sales are made at 10% above the normal selling price.

Draw a forecast of working capital requirements of the factory.

Problem No. 22. A Factory produces 84,000 units during the year and sells them @ Rs. 50 per unit. Cost structure

of a product is as follows:

Raw Materials 55%

Labour 18%

Overheads 17%

90%

Profit 10%

Selling Price 100%

The following additional information is available:

1) The activities of purchasing, producing and selling occur evenly throughout the year.

2) Raw material equivalent to 1½ months supply is stored in godown.

3) The production process takes 15 days.

4) Finished goods equal to one month’s production are carried in stock.

5) Debtors get 1 month credit.

6) Creditors allow 2 months credit.

7) Time lag in payment of wages and overheads is 1 month.

8) Cash & Bank Balance is to be maintained at 15% of working capital.

9) 25% of purchases are for cash.

Draw a forecast of working capital requirements of the factory.

Short notes (1) Explain the working capital cycle of a manufacturing concern. (April, 2015) (October, 2001,2005)

(2) Describe the factors that affect the requirement of working capital ( October, 2014 )

(3) Explain in brief the difference between Gross Working Capital and Net Working Capital. (April, 2000)

(4) Explain in brief Consequences of Inadequate Working Capital. (October, 2006)

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Module

CASH FLOW STATEMENT ( Indirect Method Only)

Financial statement namely statement of Profit and loss and Balance sheet suffers from certain limitations. Balance

sheet shows the position of assets and liabilities on a given date but does not reflect how they have changed from

one asset to another. It does not provide information about the investing and financing activities of the company

during the accounting period. Similarly, Statement of Profit and loss shows, profit or loss during a given period but

does not show in statement of Profit and loss may be non-cash expenses ( Depreciation, goodwill written off) and

some expenses may be non-operating (loss on sale of assets) and some incomes may be non-operating incomes

(profit on sale of assets ).

Thus, Net Profit does not mean cash profit or cash generated from operating business. To overcome these difficulties

(limitations) of financial statement, Cash flow statement is prepared.

Cash flow means movement of cash and cash equivalent i.e. cash inflows and outflows.

Cash inflow: All transactions that increased in cash and cash equivalents are inflows of cash. E.g. issue of shares

for cash, loan taken, sale of long term assets including long term investments, dividend/ interest on investment

received etc.

Cash out flow : All transactions that decreases in cash and cash equivalents are outflows of cash. E.g.

Repayment of Preference shares and debentures, purchase of long term assets and investments, repayment of loan ,

payment of tax and dividend etc.

Cash comprises: Cash in hand, cash at bank, demand deposits with bank.

Cash equivalents are : Liquid Investment, treasury bills, commercial paper and all those investments which

can be matured within three months.

Indirect Mehod : Under this method cash flow from operating activities is calculated by comparing two years

Balance Sheet and additional information.

When does the cash flow arises?

Cash flow arises when the effect of the transaction is either increase in cash or decrease in cash or cash equivalent.

Classification of Activities

As per AS3 the cash flow statement should report cash flow during the period classified by operating, investing and

financing activities:

Q.1. Explain Indirect method of calculation of cash flow from operating activities.

PROFORMA OF CASH FLOW STATEMENT AS PER AS -3 ISSUED BY ICAI Cash Flow Statement based on Indirect method of Calculating Cash flow from operating activities

Rs. Rs.

Cash Flow from Operating Activities

Net Profit before taxation and extra – ordinary items **

Add: Adjustment for:

Depreciation on Fixed Assets **

Provision for Depreciation on Fixed Assets **

Goodwill written off **

Preliminary Expenses Written off **

Dividend Paid **

Provision for Bad Debts **

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Provision for Taxation **

Profit on sale of Fixed Assets/ Investments (**)

Loss on sale of Fixed Assets/ Investments **

Foreign Exchange Loss **

Interest Income (**)

Dividend on Investment (**)

Interest Expense **

Operating Profit before Working Capital Changes **

Working Capital Changes

Increase in Working Capital (**)

Decrease in Working Capital **

Cash generated from Operations **

Income Tax paid (**)

Cash Flow before Extraordinary item: **

Proceeds from earthquake disaster settlement **

Net Cash from Operating Activities **

Cash flow from Investing Activities:

Purchase of Fixed Assets and Investment **

Sale of Fixed Assets and Investment **

Interest Received **

Dividend Received **

Net Cash from Investing Activities **

Cash flows from Financing Activities:

Proceeds from Issue of share capital **

Proceeds from Long term Borrowings **

Repayment of Long term Borrowings (**)

Issue of Debentures **

Redemption of Debentures (**)

Redemption of Preference Shares (**)

Interest Paid (**)

Dividend Paid (**)

Net Cash used in Financing Activities **

**

Net Increase in Cash and Cash Equivalents:

Cash and Cash Equivalents at the beginning of period **

Cash and Cash Equivalents at the end of period **

Examples: P Ltd. Company entered into the following transactions. Classify whether the activity is (i) Operating (ii) investing (iii) financing.

Activity Operating Investing Financing Non-

Cash

i. Paid bonus to employees

ii. Paid Income tax

iii. Issued equity shares at par

iv. Issued bonus shares

v. Sold plant

vi. Purchased building

vii. Paid dividend

viii. Received dividend

ix. Paid suppliers

x. Collected from debtors

xi. Paid salaries of the employees

xii. Paid for bills payable

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xiii. Purchase a computer

xiv. Paid for administrative expenses

Operating Activities: It is directly associated with production and sale of goods / services. Cash flow from operating activities is

the indicator of the extent to which the operations of the enterprise have generated sufficient cash to maintain the

operating capability to pay dividend, repay loans and make new investments.

Cash related to the day to day activities of running the business revenue and expense transactions.

CASH FLOW FROM OPERATING ACTIVITIES

A. Operating Receipts in Cash :

Cash Sale of Goods **

Collection from Debtors **

Trading Commission Received **

** **

B. Operating Payments in Cash :

Cash Purchases **

Payment to Suppliers **

Wages & Salaries **

Office Expenses Paid **

Manufacturing Overheads paid **

Selling & Distribution Expenses Paid ** **

Cash from Operations before Tax ( A – B ) **

Less : Income Tax Paid (**)

CASH FLOW BEFORE EXTRA-ORDINARY ITEMS **

Extra – ordinary Items **

Net Cash from (Used in) Operating Activities **

Example: Rs. Rs.

Cash Sales 6,00,000 Production Overheads Paid 90,000

Cash Purchases 1,50,000 Office Expenses Paid 60,000

Collection from Debtors 12,00,000 Selling Expenses Paid 30,000

Payment to Suppliers 3,00,000 Income Tax Paid 3,54,000

Trading Commission Received 3,00,000 Insurance Claim Received from Earthquake Disaster 3,00,000

Wages & Salaries 1,20,000 Income Tax Refund 9,000

Rent Paid 30,000

Investing Activities: These are the cash flows associated with purchase and sale of both fixed assets and business interest. These

are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Cash related to buying and selling assets that the firm plans to use for longer than one year.

CASH FLOW FROM INVESTING ACTIVITIES

Proceeds from disposal of non-current Assets

Sale of Machinery **

Sale of Land and Building **

Sale of Furniture & Fixture **

Sale of Investments **

Sale of Goodwill / Patents / Trade Marks / Copyrights ** **

Add : Non-operating Income from Investments **

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Dividend on shares held as Investments **

Interest on Debentures held as Investments **

Rent from Property held as Investment ** **

**

Less: Purchase of Non-current Assets **

Purchase of Machinery **

Purchase of Buildings **

Purchase of Furnitures **

Purchase of Goodwill / Patents / Trade Marks / Copyrights ** **

Net Cash from (Used in) Investing Activities **

EXAMPLES:

2012

Rs.

2013

Rs.

Goodwill 2,30,000 1,80,000

Patents 1,80,000 2,30,000

Premises 2,00,000 3,20,000

Machinery 3,60,000 3,20,000

10% Investments 4,00,000 3,60,000

Calculate Cash flow from Investing Activities.

Write a short note on Cash flow from financial activities (November, 2014)

Financing Activities: Financing cash flow are associated with debt equity financing transactions.

Cash receipts disbursements related to loans (Principal only) cash contribution from and distribution to

owners.

CASH FLOW FROM FINANCIAL ACTIVITIES

Proceeds from Issue of Shares, Debentures, including Premium but Excluding Discount and

expenses or Brokerage in such a case:

Issue of Equity Share Capital **

Issue of Preference Share Capital **

Issue of Debentures **

Loans Taken ** **

Less: Repayment / Buyback **

Redemption of Preference Shares **

Repayment of Loans **

Redemption of Debentures **

Buyback of Equity Shares ** **

**

Less: Payment of Dividend / Interest **

Interim Dividend on Equity Shares **

Final Dividend on Equity Shares **

Final Dividend on Preference Shares **

Interest on Debentures **

Interest on Loans ** **

Net Cash from (Used in) Financial Activities **

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TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 50 Pankaj Pandagale , Assistant Professor of Accountancy

EXAMPLES:

2012

Rs.

2013

Rs.

Equity Share Capital 12,00,000 16,00,000

15% Preference Share Capital 8,00,000 4,00,000

Securities Premium 2,00,000 2,60,000

14% Debentures 4,00,000 6,00,000

Discount on Issue of Debentures 10,000 12,000

Underwriting Commission on Issue of Shares - 20,000

Calculate Cash flow from Financing Activities.

Problem No. 1. Following are the Balance Sheet of Palghar Industires Ltd.

Liabilities

As on

31.03.2009

Rs.

As on

31.03.2009

Rs.

Assets

As on

31.03.2009

Rs.

As on

31.03.2009

Rs.

Equity Share Capital 500000 1000000 Fixed Assets 850000 950000

Profit and Loss A/c 170000 465000 Investments 300000 300000

10% Debentures 500000 - Advance to

Suppliers

133000 36000

Bank Overdraft 100000 75000 Stock 500000 471000

Sundry Creditors 980000 650000 Sundry Debtors 712000 682000

Provision for

Depreciation

250000 290000 Advance Income-tax 80000 160000

Proposed Dividend 100000 200000 Prepaid Expenses 50000 60000

Provision for Taxation 70000 160000 Cash Balance 25000 175000

Unpaid Dividend - 10000 Preliminary

Expenses

20000 16000

2670000 2850000 2670000 2850000

Additional Information:

1. On 1.04.2009, 10% Convertible Debentures were converted into Equity Shares.

2. During the year 2009-10, a fixed assets having original cost of Rs.50000 which was fully depreciated.

3. Investment costing Rs.100000 was sold for Rs.90000 and new investment was made during the year 2009-

10.

4. Proposed dividend for 2008-09 was paid on 05.04.2009, but a dividend warrant of Rs.10000 was returned

unpaid.

5. Income-tax for 2008-09 was assessed at Rs.70000 on 25.12.2009 and refund of income tax of 10000 was

received on 10.01.2010.

Prepare Cash flow statement for the year ended 31st March, 2010 by indirect method as AS-3 from the

above information. ( March, 2011 )

[ Ans. Cash At End of Period Rs.1,00,000 ]

Problem No. 2. Following are the Balance Sheet of Young India Ltd.

Liabilities 2002

Rs.

2001

Rs. Assets

2002

Rs.

2001

Rs.

Share Capital 700000 600000 Fixed Assets 650000 400000

General Reserve 200000 150000 Debtors 350000 200000

Profit and Loss A/c 200000 100000 Stock 250000 150000

14% Debentures issued for

purchase of fixed Assests

200000

-

Underwriting Commission - 70000

Proposed Dividend 80000 70000

1380000 920000 1380000 920000

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TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 51 Pankaj Pandagale , Assistant Professor of Accountancy

Assuming the depreciation for the year to be Rs.50000 and interim dividend paid during the year to be 5% on

opening capital, Prepare Cash flow statement.

( October, 1998 )

[ Ans. Cash At End of Period Rs.1,30,000 ]

Problem No. 3. Telestar Ltd. gives you the following Balance Sheets for the year ended 31st March, 2013 and 2014.

Prepare a Cash Flow Statement for the year ended 31st March, 2007 as per AS – 3 by indirect method.

Liabilities

As on

31.03.2013

Rs.

As on

31.03.2014

Rs.

Assets

As on

31.03.2013

Rs.

As on

31.03.2014

Rs.

Equity Share Capital 1,20,000 1,20,000 Land 2,10,000 2,70,000

5% Preference Share Capital 90,000 60,000 Building 2,85,000 2,70,000

General Reserve 30,000 42,330 Stock 27,000 36,300

Profit and Loss A/c 15,240 28,080 Debtors 40,440 38,460

Sundry Creditors 3,37,920 3,81,990 Prepaid Expenses 25,880 17,000

Provision for Taxation 17,000 8,000 Bank Balance 15,480 3,240

Misc. Expenditure 6,000 5,400

6,10,160 6,40,400 6,10,160 6,40,400

Other information for the year ended 31st March, 2014:

1. The Company has paid interim dividend of 5% on Equity shares.

2. Preference Shares were redeemed during the year at 10% premium.

3. Income tax paid during the year Rs.15,000. ( Ocotber, 2008 )

Problem No. 4. Following are the summarized Balance Sheet of Mayur Industries Private Limited as on 31st March,

2002 and March, 2003

Liabilities 2003

Rs.

2002

Rs. Assets

2003

Rs.

2002

Rs.

Share Capital 500000 500000 Premises 475000 500000

General Reserve 150000 125000 Machinery 422500 375000

Profit and Loss A/c 76500 76250 Equipments 40500 45000

Term Loan from ICICI 155000 175000 Stock 74000 100000

Sundry Creditors 231250 275000 Sundry Debtors 160000 200000

Provision for Taxation 76250 84250 Cash 7000 3000

Bank 10000 -

Goodwill - 12500

1189000 1235500 1189000 1235500

Other Information:

1. Dividend (Interim) of Rs.25000 was paid during the year.

2. Depreciation on Premises is provided at 5%.

3. Machinery of Rs.75000 was acquired during the year.

4. Income tax provision for the year was Rs.75000.

Prepare Cash flow statement ( Ocotber, 1997 )

[ Ans. Cash & Bank At End of Period Rs.7,000 & Rs.10,000 ]

Problem No. 5. From the following financial statement prepare a Cash Flow Statement of EPABX Ltd. for the

year ended 31st December,2002.

Balance Sheet as on

Liabilities 31.12.01

Rs.

31.12.02

Rs.

Assets 31.12.01

Rs.

31.12.02

Rs.

Share Capital 1,35,000 1,35,000 Goodwill 13,950 4,950

Reserves 40,500 54,000 Land & Building 32,400 45,000

Loans 45,000 27,000 Plant & Machinery 1,13,400 85,050

Fixed Deposits 67,950 62,010 Furnitures -- 40,500

Creditors 71,640 43,920 Investment 40,500 49,500

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 52 Pankaj Pandagale , Assistant Professor of Accountancy

Proposed Dividend 13,500 16,200 Debtors 94,500 1,14,120

Provision for taxation 10,800 12,600 Bank Balance 89,640 11,610

3,84,390 3,50,730 3,84,390 3,50,730

Other information:

1) Depreciation is Provided @ 10 % on Furniture

2) Depreciation on Land and Building is Rs. 5,000

3) Investment costing Rs. 8,000 were sold for Rs. 10,000 during the year.

Tax of Rs. 13,000 was paid for the year ended 31st December,2002. ( Ocotber, 1995 )

[ Ans. Cash At End of Period Rs.11,610 ]

Problem No. 6.The Balance Sheet of Yash Ltd. 31st December, 2001, 2002 are as under:

Balance Sheet (Figures in Thousand)

Liabilities 31.3.01

Rs

31.3.02

Rs. Assets

31.3.01

Rs.

31.3.02

Rs.

Equity Shares Capital 350 400 Fixed Assets 210 320

General Reserves 20 -- Stock 90 140

Profit & Loss A/c 40 -- Sundry Debtors 60 55

Secured loans -- 180 Bills Receivable 50 75

Sundry Creditors 30 45 Investment 70 40

Bills Payable 50 25 Cash 30 20

Outstanding Expenses 10 30 Profit & Loss A/c -- 30

Unpaid Dividend 10 --

510 680 510 680

Accumulated Depreciation was Rs. 60,000 on 31st December, 2001 and on 31st December, 2002,it was Rs.

57,000. Machinery having written down value Rs. 90,000 was sold for Rs. 15,000 on 1.7.2002. Plant costing Rs.

2,30,000 purchased on 1st July, 2002.

Prepare: 1) Statement showing cash flow operation

2) Statement of Cash Flow for the year ended 31st December,2002. ( April, 1997 )

[ Ans. Cash At End of Period Rs.20,000 ]

Problem No. 7. Following are the Balance Sheet as at 31st March, 2002 and 2003

Balance Sheet

Liabilities 31.3.02

Rs

31.3.03

Rs

Assets 31.3.02

Rs

31.3.03

Rs

Equity Shares Capital 1,00,000 1,50,000 Land & Building 80,000 75,000

General Reserves 60,000 10,000 Plant & Machinery 42,000 85,000

Profit & Loss A/c 5,000 30,000 Furniture & Fittings 7,000 6,000

Bank Overdraft -- 65,000 Investment 6,000 12,000

Loan against Stock 27,500 94,500

Mortage of Plant &

Machinery

-- 40,000 Sundry Debtor 46,500 77,250

Provision for Taxation 10,000 15,000 Cash 2,000 7,250

Sundry Creditors 30,000 20,000 Preliminary Expenses 4,000 3,000

Bills Payable 10,000 30,000

2,15,000 3,60,000 2,15,000 3,60,000

During the year ended 31st March, 2003, following transactions took place.

1) Bonus Shares have been issued at one for every two heldout of General Reserves

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TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 53 Pankaj Pandagale , Assistant Professor of Accountancy

2) Company purchased Plant & Machinery for Rs. 60,000, out of which Rs.20,000, paid in cash and for the rest,

Plant & Machinery mortgaged to seller.

3) Dividend paid Rs. 15,000

4) Furniture (Book Value Rs.2,100) was sold forRs. 3,045

5) Investment costing Rs. 3,000 written-off in the year 1989, were sold for Rs. 5,000 on 12th March, 2003.

6) Furniture purchased during the year for Rs. 1,500

7) Net Profit for the year, after charging depreciation on Land and Building, Plant & Machinery, Furniture &

Fittings and Rs. 21,000 provision for taxation.

You are required to to prepare a) Cash Flow Statement b) Cash from Operations

c) Other necessary Ledger Accounts. (Ocober, 1996)

[ Ans. Cash At End of Period Rs.7,250 and Bank Overdraft Rs.(65,000) ]

Problem No. 8. From the following Balance Sheet of Mr. X, prepare a Cash Flow Statemnt for the year 2003

indicating therein seperatley the cash from operation.:

Liabilities 2003

Rs.

2002

Rs. Assets

2003

Rs.

2002

Rs.

Capital 4,00,000 3,00,000 Fixed Assets 4,90,000 5,44,000

Loans 1,20,000 2,60,000 Stock 44,000 30,000

Creditors 30,800 51,200 Debtors 90,000 60,000

Provision for Taxation 8,000 20,000 Cash 11,200 15,000

Bills Payable 1,17,200 57,400 Bank 40,000 30,000

Unpaid Income Tax 2,000 -- Deferred Revenue Expenses 2,800 9,600

6,78,000 6,88,600 6,78,000 6,88,600

Other particulars:

1) An item of Fixed of Assets having book value of Rs. 5,000 was sold for Rs. 6,000 during the year 2003.

2) Capital at the end of 1999 was arrived after making adjustment of the newely introduced capital of Rs. 20,000

and Drawings of Rs. 50,000.

3) Income Tax Assessment for the year 2002 was complete resulting in a gross demand of Rs. 22,000 out of

which Rs. 20,000 being undisputed demand was paid.

Problem No. 9. Horizon Ltd. engaged in the following transaction. Identify whether it is (a) an operating (b)

investing (c) a financing (d) none of the above.

1. Dividend paid

2. Interest paid

3. Issued long term bands

4. Purchased long term investements

5. Equipment Sold

6. Dividend received on shares held

7. Purchased land

8. Received cash from customers

9. Wages paid to workers

10. Issued bonus shares out of General Reserves

Problem No. 10. Following are summary Balance Sheet of Young India Ltd. for the year ended 31/3/2007 as per

AS – 3 by indirect method

Liabilities 2014 2013 Assets 2014 2013

Share Capital 7,00,000 6,00,000 Fixed Assets 6,50,000 4,00,000

General Reserve 2,00,000 1,50,000 Debtors 3,50,000 2,00,000

Profit and loss A/c 2,00,000 1,00,000 Stock 2,50,000 1,50,000

14% Debentures issued

for purchase of Fixed

Assets

2,00,000

Nil

Cash

1,30,000

1,00,000

Proposed Dividend 80,000 70,000 Underwriting

commission

Nil

70,000

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

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13,80,000 9,20,000 13,80,000 9,20,000

Assuming the depreciation for the year to be Rs.50,000 and interim dividend paid during the year to be 5% on

opening capital, Prepare Cash flow statement.

Problem No. 11.Calculate Cash Flow from operating Acitivities form following details by Indirect Method.

31.03.2007 31.03.2008

Profit and loss A/c 50000 80000

Provision for Depreciation 10000 12000

Outstanding Expenses 7000 8500

Bills payable 4000 4000

Creditors 9000 7000

Stock 15000 17500

Debtors 18000 13000

Cash in hand and Bank Balance 7000 8550

Bills Receivable 2000 5000

Goodwill 10000 7500

Provision for Taxation 15000 17000

General Reserve 12000 15000

Additiona Information:

1. Fixed Assets sold at a profit of Rs.5000.

2. Income tax paid during the year Rs.4000.

Problem No. 12.Calculate Cash Flow from operating Acitivities form following details by Indirect Method.

2008 2009

Profit and loss A/c 50000 80000

Stock 25000 29000

Debtors 40000 37000

Prepaid expenses 5000 5500

Bills Receivables 6000 6000

Outstanding expenses 9000 12500

Bills payable 17000 13000

General Reserve 25000 27000

During the year Depreciation on Assets charged Rs.4000.

Problem No. 9.Calculate Cash Flow from operating Acitivities form following details by Indirect Method.

2008 2009

Net profit - 75000

Bills payable 40000 45000

Bills Receivable 37000 42000

Stock 34000 36000

Debtors 40000 37500

Outstanding Income 9000 9700

Sundry Creditors 90000 83000

Goowill 50000 44000

Provision for Depreciation 10000 13000

During the year the year Income tax paid Rs.3800.

Problem No. 13.Calculate Cash Flow from operating Acitivities form following details by Indirect Method.

2009

Net Loss A/c 30000

Profit on sale of Assets 5000

Provision for Taxtion 9000

Proposed Dividend 12000

Deprecition on Assets 3500

Goodwill written off 2500

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TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 55 Pankaj Pandagale , Assistant Professor of Accountancy

Loss on sale of Assets 700

Increase in Bill Receivable 2500

Increase in Bills payable 2000

Decrease in Debtors 3700

Decrease in Creditors 1700

Transfer to Reserve 1200

During the year the year taxes paid Rs.1400.

Problem No. 14.From the following Balance sheet of XYZ Ltd as on 31/3/2006 and 31/3/2007 prepare cash flow

statement for the year ended 31/3/2007 as per AS – 3 by indirect method

Liabilities 2006 2007 Assets 2006 2007

Equity share capital 45,00,000 52,50,000 Land 15,00,000 11,50,000

General Reserve 3,00,000 5,00,000 Machinery 13,50,000 28,70,000

Capital Reserve 3,00,000 Investments 9,00,000 7,00,000

Profit / Loss A/c 3,00,000 4,00,000 Stock 14,00,000 16,00,000

Creditors 6,00,000 9,00,000 Debtors 9,00,000 13,50,000

Provision for Tax 5,00,000 5,50,000 Bills receivable 2,45,000 2,90,000

Proposed Dividend 3,95,000 4,50,000 Cash and bank balance 3,00,000 3,90,000

65,95,000 83,50,000 65,95,000 83,50,000

Additional information for the year ended 31st march 2007

1. During the year Machinery was sold for Rs 2,00,000 ( WDV Rs 2,25,000 )

2. During the year depreciation provided on machinery was Rs 3,00,000

3. Profit on sale of land was transferred to capital reserves

4. Interim dividend paid during the year Rs 2,00,000

5. Profit on sale of investment was transferred to General reserve

6. Income tax paid during the year 2007 is Rs 4,50,000. (March, 2008)

[ Ans. Cash and Cash Equivalents at end of year Rs.3,90,000 ]

Problem No. 15.Bell Co. submits the following information pertaining to year 2012-13. Using the given data,You

are required to prepare Cash Flow Statement for the year ended 31st March, 2013 by indirect method.

Particulars Rs. (in millions)

Opening Balance of Cash and Cash Equivalents 1.55

Additional Shares issued 6.50

Capital Expenditure 9.90

Proceeds from Assets sold 1.60

Dividend paid 0.50

Loss from Disposal of Assets 1.20

Net Profit for the year 3.30

Increase in Accounts Receivable 1.50

Redemption of 4.5% Debentures 2.50

Depreciation and Amortisation 0.75

(CA – IPCC, Nov., 2013)

[ Ans. Cash and Cash Equivalents at end of year Rs.0.50 ]

Problem No. 16. ABC Ltd. submits has given the following information for the preparation of Cash Flow Statement

for the year ended 31st March, 2013.

Particulars Rs. (in Lakhs)

Net Profit after Tax 50,000

Dividend (including Dividend Tax) Paid 17,070

Provision of Income Tax 10,000

Income tax paid during the year 8,496

Loss on Sale of Assets (net) 80

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TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 56 Pankaj Pandagale , Assistant Professor of Accountancy

Book value of the Assets sold 370

Depreciation charged to Statement of Profit and Loss 40,000

Amortisation of Capital Grant 12

Profit on sale of Investments 200

Carrying amount of Investment sold 55,530

Interest received on Investments 5,012

Interest Expenses of the year 20,000

Interest paid during the year 21,040

Increase in working capital (excluding cash and cash balance ) 1,12,150

Purchase of Fixed Assets 1,06,300

Proceeds from Calls in Arrears 4

Receipts of Grant for Capital Projects 24

Proceeds from Long term borrowings 51,960

Proceeds from Short term borrowings 41,150

Opening Cash and Bank Balance 10,006

Closing Cash and Bank Balance 13,976

(CA – IPCC, May, 2013)

[ Ans. Cash and Cash Equivalents at end of year Rs.13,976 ]

Problem No. 17. K Ltd. Company entered into the following transactions. Classify whether the activity is (i) Operating (ii)

investing (iii) financing (iv) non-cash

Activity Operating Investing Financing Non-Cash

1. Purchase equipment

2. Sold old furniture

3. Purchase a building

4. Paid to suppliers

5. Collected from customers

6. Paid income tax

7. Sold goods for cash

8. Purchase goods for cash

9. Paid for insurance

10. Provided Depreciation

11. Purchase machinery

12. Written off as a bad debt

13. Issued bonus Shares

14. Purchase Machinery and issued shares for it

15. Received cash on maturity of Bills Receivable

16. Paid cash on maturity of Bills Payable

17. Received interest

18. Paid Dividend

19. Redeemed Preference shares

20. Loan repaid

21. Redeemed Debentures

22. Accepted Public Deposits

Problem No. 18. Calculate collection from debtors from the following information:

Debtors 01/04/2012 Rs.3,00,000

Total Sales Rs.9,00,000

Cash Sales Rs.1,50,000

Debtors 31/03/2013 Rs.4,00,000

[ Ans. Collection from Debtors Rs.6,50,000 ]

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 57 Pankaj Pandagale , Assistant Professor of Accountancy

Problem No. 19. Calculate collection from creditors from the following information:

Creditors 01/04/2012 Rs.50,000

Credit Purchases Rs.2,30,000

Creditors 31/03/2013 Rs.80,000

[ Ans. Payment made to Creditors Rs.2,00,000 ]

Problem No. 20. Calculate cash flow from operating activities:

Cash Received Customers Rs.4,00,000

Cash Paid to Suppliers Rs.2,50,000

Operating Expenses Rs.50,000

Income Tax Rs.10,000

[ Ans. Cash flow from Operating Activities Rs.90,000 ]

Problem No. 21. Profit & Loss A/c for the year ended 31st Dec. 2013

Rs.

Sales 5,70,000

Less: Cost of Goods Sold 4,45,000

Depreciation 89,000

Selling and Administrative Expenses 46,000

Interest expenses 14,000

Loss on sale of Plant 3,000

Calculate Cash from Operating Activity (Direct Method)

[ Ans. Cash flow from Operating Activities Rs.79,000 ]

Problem No. 22. Calculate cash flow operating activities ( Indirect Method)

Vijay & Co. reported net profit of Rs.6,80,000. Depreciation Rs.98,000. Profit on sale of investment Rs.16,000.

31/03/2012

Rs.

31/03/2013

Rs.

Stock 1,18,000 1,44,000

Debtors 1,88,000 1,22,000

Prepaid Expenses 28,000 6,000

Creditors 1,64,000 1,56,000

Income Tax Payable 26,000 38,000

[ Ans. Cash flow from Operating Activities Rs.6,96,000 ]

Problem No. 23. Following information is extracted from the records of BJ Ltd. Calculate cash flow from investing

activities for the year ended 31/03/2013.

1. Purchased 1,000 shares of HCL Ltd @ Rs.90 each.

2. Purchased Furniture for Rs.80,000.

3. Bought computer for Rs.40,000.

4. Sold 500 shares of HCL Ltd. @ Rs.100 each.

5. Sold furniture costing Rs.50,000 having a book value of Rs.35,000 at a profit of Rs.60,000.

6. Sold the computer for Rs.25,000.

[ Ans. Cash flow from Investing Activities Rs.94,000 ]

Problem No. 24. Calculate cash flow from financing activities from the following information. Rs.

Issued Equity Shares 5,00,000

Redeemed Preference Shares 1,00,000

Issued Debentures 1,50,000

Redeemed Debentures 80,000

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Paid Dividend 25,000

Took loan from SBI 1,20,000

Repaid SBI Loan 60,000

[ Ans. Cash flow from Financing Activities Rs.5,05,000 ]

Problem No. 25. From the following, calculate cash flow from Operating Activities.

Profit and Loss A/c

For the year ended 31st March, 2013

Rs. Rs.

To Salaries 5,000 By Gross Profit 25,000

To Rent 1,000 By Profit on Sale of Land 5,000

To Depreciation 2,000 By Income – Tax Refund 3,000

To Loss on Sale of Plant 1,000

To Goodwill w/off 4,000

To Proposed Dividend 5,000

To Provision for Tax 5,000

To Net Profit 10,000

33,000 33,000

[ Ans. Cash flow from Operating Activities Rs.19,000 ]

Problem No. 26. From the following, Balance Sheet as on 31st December, 2012 and 31st December, 2013, you are

required to prepared a cash flow statement:

Liabilities 2012

Rs.

2013

Rs. Assets

2012

Rs.

2013

Rs.

Share Capital 1,00,000 1,50,000 Fixed Assets 1,00,000 1,50,000

Profit & Loss A/c 50,000 80,000 Goodwill 50,000 40,000

General Reserve 30,000 40,000 Inventories 50,000 80,000

6% Bonds 50,000 60,000 Debtors 50,000 80,000

Sundry Creditors 30,000 40,000 Bills Payable 10,000 20,000

Outstanding Expenses 10,000 15,000 Bank 10,000 15,000

2,70,000 3,85,000 2,70,000 3,85,000

[ Ans. Cash and Cash Equivalents at end of year Rs.15,000 ]

Problem No. 27. X Ltd. supplies you the following Balance sheets on 31st December

Liabilities 2012

Rs.

2013

Rs. Assets

2012

Rs.

2013

Rs.

Share Capital 70,000 74,000 Bank Balance 9,000 7,800

Bonds 12,000 6,000 Account Receivable 14,900 17,700

Accounts Payable 10,360 11,840 Inventories 49,200 42,700

Provision for Doubtful Debts 700 800 Land 20,000 30,000

Reserves and Surplus 10,040 10,560 Goodwill 10,000 5,000

1,03,100 1,03,200 1,03,100 1,03,200

Following additional information has also been supplied to you:

i. Dividends amounting to Rs.3,500 were paid during the year 2013.

ii. Land was purchased for Rs.10,000.

iii. Rs.5,000 were written off on Goodwill during the year.

iv. Bonds of Rs.6,000 were paid during the course of the year.

You are required to prepare a Cash Flow Statement.

[ Ans. Cash and Cash Equivalents at end of year Rs.7,800 ]

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 59 Pankaj Pandagale , Assistant Professor of Accountancy

Problem No. 28. Monica Ltd. furnish you the following Balance Sheets for the year ending on 31st December, 2012

and 31st December, 2013.

Liabilities 2012

Rs.

2013

Rs. Assets

2012

Rs.

2013

Rs.

Equity Share Capital 10,000 10,000 Goodwill 1,200 1,200

General Reserve 1,400 1,800 Land 4,000 3,600

Profit and Loss A/c 1,600 1,300 Building 3,700 3,600

Sundry Creditors 800 540 Investments 1,000 1,100

Outstanding Expenses 120 80 Inventories 3,000 2,340

Provision for Taxation 1,600 1,800 Accounts Receivable 2,000 2,220

Provision for Bad Debts 40 60 Bank Balance 660 1,520

15,560 15,580 15,560 15,580

Following additional information has also been supplied to you:

a. A piece of land has also been sold for Rs.400.

b. Depreciation amounting to Rs.700 has been charged on building.

c. Provision for Taxation has been made for Rs.1,900 during the year.

[ Ans. Cash and Cash Equivalents at end of year Rs.1,520 ]

Problem No. 29. Balance Sheets of XYZ Ltd. as on 1st January,2013 and 31st December, 2013 were as under:

Liabilities Jan. 2013

Rs.

Dec. 2013

Rs. Assets

Jan. 2013

Rs.

Dec. 2013

Rs.

Creditors 40,000 44,000 Cash 10,000 7,000

S’s Loan 25,000 - Debtors 30,000 50,000

Loan from Bank 40,000 50,000 Stock 35,000 25,000

Capital 1,25,000 1,53,000 Machinery 80,000 55,000

Land 40,000 50,000

Buildings 35,000 60,000

2,30,000 2,47,000 2,30,000 2,47,000

During the year, a machine costing Rs.10,000 (total depreciation written off Rs.3,000) was sold for Rs.5,000. The

provision for depreciation against machinery as on 1st January, 2010 was Rs.25,000 and on 31st December, 2010 was

Rs.40,000.

Prepare the cash flow statement in accordance with Accounting Standard -3 (Revised).

[ Ans. Cash and Cash Equivalents at end of year Rs.7,000 ]

Problem No. 30. You are required to prepare Cash Flow Statement for the year ended 31st December, 2013, from

the following Balance Sheet of “NO SUCH CO.LTD.

Liabilities 2013

Rs.

2013

Rs. Assets

2013

Rs.

2013

Rs.

Share Capital 1,00,000 1,00,000 Goodwill 12,000 12,000

General Reserve 14,000 18,000 Building 40,000 36,000

Profit and Loss 16,000 13,000 Plant 37,000 36,000

Sundry Creditors 8,000 5,400 Investment 10,000 11,000

Bills payable 1,200 800 Stock 30,000 23,000

Provision for Taxation 16,000 18,000 Bills Receivable 2,000 3,200

Provision for Doubtful Debts 400 600 Debtors 18,000 19,000

Cash at Bank 6,600 15,200

1,55,600 1,55,800 1,55,600 1,55,800

Additional Information:

1. Depreciation charged on Plant Rs.4,000.

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 60 Pankaj Pandagale , Assistant Professor of Accountancy

2. Provision for taxation of Rs.19,000 was made during the year 2013.

[ Ans. Cash and Cash Equivalents at end of year Rs.15,200 ]

Problem No. 31. State which of the following items relate to inflow and outflow of cash

a. Cash sale of goods.

b. Collection from Debtors

c. Cash Purchases of raw – material

d. Rent received from assets let out.

e. Refund of tax

f. Issue of shares for cash

g. Cash payment expenses

h. Discounting of Bills Receivable

i. Cash payment of income tax

j. Issue of Bills payable for loans

k. Cash sale of fixed assets

l. Redemption of debentures

m. Repayment of loans in cash

Problem No. 32.Following is the summarized financial position of Arpita Ltd. as on 31st March:

Particulars 2013

Rs.

2014

Rs.

Equity and Liabilities:

Equity Share Capital 2,00,000 2,50,000

10% Preference Share Capital 2,00,000 1,50,000

General Reserve 80,000 1,00,000

Profit and Loss Account 1,00,000 1,50,000

12% Debentures 2,00,000 3,00,000

Sundry Creditors 1,00,000 1,20,000

Bills Payable 60,000 50,000

Provision for Taxation 70,000 90,000

Proposed Dividend 50,000 55,000

10,60,000 12,65,000

Assets:

Building 3,00,000 3,20,000

Machinery 1,50,000 1,80,000

Furniture 40,000 36,000

10% Trade Investments 1,00,000 1,00,000

Stock 1,50,000 2,00,000

Debtors 2,30,000 3,44,000

Cash and Cash equivalents 90,000 85,000

10,60,000 12,65,000

Additional Information :

1. Fresh debentures were issued on 1st April, 2013.

2. Depreciation charged on Building Rs.30,000 and on Machinery Rs.25,000.

3. Furniture costing Rs.4,000, fully depreciated, was scrapped during the year.

4. Preference shares were converted into Equity shares on 1st April, 2013.

Prepare Cash flow statement as per AS-3 for the year ended 31st March, 2014 using indirect method. (April, 2015)

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 61 Pankaj Pandagale , Assistant Professor of Accountancy

Problem No. 33. Following are summarized Balance Sheets of BDM Ltd. as on 31st March, 2013 and 2014.

Additional Information: 1. Depreciation charged during 2014 was Rs. 4,000/- on Furniture. Rs. 12,000/- on Machinery and

Rs. 20,000/- on Buildings.

2. Part of Machinery was sold for Rs. 15,000/- at a loss of Rs. 4,000/.

3. During 2005 interim dividend was paid Rs. 10,000 & Income Tax was paid Rs. 5,000/-.

4. During the year part of the Building was sold at book-value.

You are required to prepare Cash Flow Statement as per AS. 3 (Use Indirect method).

(March, 2006’)

Problem No. 34. Telestar Ltd. gives you the following Balance - Sheets for the year ended 31st March, 2013 and

2014. Prepare a Cash Flow Statement for the year ended 31st March, 2007 as per As - 3 by indirect method.

Other information for the year ended 31st March,2014

(1) The company has paid Interim dividend of 5 %on Equity shares.

(2) Preference shares were redeemed during the year at 10% premium.

(3) Income Tax paid during the year Rs. 15,000. (March,

2008)

Balance Sheet

Liabilities 2013

Rs.

2014

Rs. Assets

2013

Rs.

2014

Rs.

Equity Share Capital 2,00,000 2,50,000 Bank 35,000 16,000

12% Debentures 1,00,000 80,000 Stock 40,000 75,000

10% Preference Share Capital 50,000 80,000 Debtors 90,000 1,50,000

Bank Loan 70,000 1,10,000 Machinery 75,000 60,000

Reserves 20,000 25,000 Furniture 10,000 8,000

P & L A/c 50,000 60,000 Land 1,70,000 2,80,000

Creditors 60,000 75,000 Buildings 1,40,000 99,000

Bills Payable 40,000 33,000 Goodwill 30,000 25,000

5,90,000 7,13,000

5,90,000 7,13,000

Liabilities 31-3-13

Rs.

31-3-14

Rs. Assets

31-3-13

Rs.

31-3-14

Rs.

Equity Share Capital 1,20,000 1,20,000 Land 2,10,000 2,70,000

5% Preference Share Capital 90,000 60,000 Building 2,85,000 2,70,000

General Reserve 30,000 42,330 Stock 27,000 36,300

Profit and Loss Account 15,240 28,080 Debtors 40,440 38,460

Provision for Tax 17,000 8,000 Prepaid Expenses 25,880 17,000

Creditors 3,37,920 3,81,990 Bank Balance 15,840 3,240

Misc Expenditure 6,000 5,400

Total 6,10,160 6,40,400 Total 6,10,160 6,40,400

GES’s Dr T K Tope Arts and Commerce Night College, Parel, Mumbai – 4000 12 TYBCOM Semester V 2016-2017

TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 62 Pankaj Pandagale , Assistant Professor of Accountancy