Upload
others
View
13
Download
0
Embed Size (px)
Citation preview
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.
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 12 Pankaj Pandagale , Assistant Professor of Accountancy
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.
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 13 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 14 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 15 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 16 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 17 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 18 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 19 Pankaj Pandagale , Assistant Professor of Accountancy
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)
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 20 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 21 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 22 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 23 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 24 Pankaj Pandagale , Assistant Professor of Accountancy
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.
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 25 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 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
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 27 Pankaj Pandagale , Assistant Professor of Accountancy
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 ? ? ? ? ? ?
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 28 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 29 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 30 Pankaj Pandagale , Assistant Professor of Accountancy
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 )
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 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-
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 32 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 33 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 34 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 35 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 36 Pankaj Pandagale , Assistant Professor of Accountancy
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.
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 37 Pankaj Pandagale , Assistant Professor of Accountancy
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.
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 38 Pankaj Pandagale , Assistant Professor of Accountancy
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 )
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 39 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 40 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 41 Pankaj Pandagale , Assistant Professor of Accountancy
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
2½
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)
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 42 Pankaj Pandagale , Assistant Professor of Accountancy
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.
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 43 Pankaj Pandagale , Assistant Professor of Accountancy
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)
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 44 Pankaj Pandagale , Assistant Professor of Accountancy
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.
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 45 Pankaj Pandagale , Assistant Professor of Accountancy
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)
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 46 Pankaj Pandagale , Assistant Professor of Accountancy
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 **
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 47 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 48 Pankaj Pandagale , Assistant Professor of Accountancy
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 **
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 49 Pankaj Pandagale , Assistant Professor of Accountancy
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 **
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 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
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 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
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 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
TYBCOM Semester V Financial Accounting and Auditing Paper VII (Management Accounting) Page 54 Pankaj Pandagale , Assistant Professor of Accountancy
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
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 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
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 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
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 58 Pankaj Pandagale , Assistant Professor of Accountancy
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