COUNCIL FOR THE INDIAN SCHOOL CERTIFICATE EXAMINATIONSP-35,36, Sector VI, Pushp Vihar, New Delhi-110017

NEW DELHI

ISC ACCOUNTS

Guidelines pertaining to Revised Schedule VI of Part I & II ofCompanies Act 1956 – Applicable for ISC Accounts

from the Examination Year 2014 onwards.

1

FORMAT OF THE BALANCE SHEET OF A JOINT STOCK COMPANY

PART-1BALANCE SHEET

Name of the Company....................Balance Sheet as at.........................

(Rupees in ................)Particulars Note

No.Figures at the end

of the currentreporting period

Figures at the endof the previousreporting period

1. 2 3 4.I. EQUITY AND LIABILITIES

1. Shareholders Funds(a) Share Capital(b) Reserves and Surplus(c) Money received against share

warrants2. Share application money pending

allotment3. Non- Current Liabilities

(a) Long- term borrowings(b) Deferred tax liabilities (Net)(c) Other Long term liabilities(d) Long-term provisions

4. Current Liabilities(a) Short term borrowings(b) Trade payables(c) Other current liabilities(d) Short term provisions

TOTALII. ASSETS

1. Non- Current Assets(a) Fixed Assets

(i) Tangible Assets(ii) Intangible Assets(iii) Capital work-in-progress(iv) Intangible assets under

development(b) Non-current Investments(c) Deferred Tax Assets (Net)(d) Long term loans and advances(e) Other non-current assets

2. Current Assets(a) Current Investments(b) Inventories(c) Trade Receivables(d) Cash and cash equivalents(e) Short-term loans and advances(f) Other current assets

TOTAL

2

In what follows, is the extent to which the students are expected to know about the items of theRevised Schedule VI ( Part I and Part II) for:

Section A- Unit 3(C)- Final Account of Companies

Section B- Unit 4- Financial Statement Analysis

Section B- Unit 5- Cash Flow Statement

Section B- Unit 6- Ratio Analysis.

Certain items have been marked with **.For a few of those items marked with ** the students are required to know the meaning and theheading / sub-heading under which these items appear in the Revised Schedule VI. These items havealso been indicated in the subsequent pages.However, for all items marked with ** no accounting treatment will be asked.

EXPLANATION AND PRESENTATION OF ITEMS UNDERTHE HEADS AND SUBHEADS

EQUITY AND LIABILITIES

1. Shareholders’ Funds(a) Share Capital

Particulars NoteNo.

Figures at the endof the current

reporting period

Figures at the endof the previousreporting period

1 2 3 4I. EQUITY AND LIABILITIES

1. Shareholders Funds(a) Share Capital 1 x x x

Notes to Accounts: 1.Particulars Amount (`)

(a) Share CapitalAuthorised Capital...... shares of `..... each

Issued Capital..... shares of `..... each(of the above shares…..shares are allotted as fully paid up pursuant to acontract without payment being received in cash)Subscribed CapitalSubscribed and fully paid up..... shares of `.... each(of the above shares…..shares are allotted as fully paid up pursuant to acontract without payment being received in cash)

x x x

x x x

x x x

x x x

3

Subscribed but not fully paid up..... shares of `.... each, .... ` Called up x x x Less calls –in- arrear (xx)Add Shares Forfeited A/c x

TOTAL x x xPoints to be noted: Equity share capital and preference share capital to be shown separately. If the authorised/issued capital is not mentioned in the question it has to be shown in the notes to

accounts. However no figures will be shown as illustrated above.

(b) Reserves and Surplus

Particulars NoteNo.

Figures at the endof the current

reporting period

Figures at the endof the previousreporting period

1. 2 3 4.II. EQUITY AND LIABILITIES

1. Shareholders Funds(b) Reserves and Surplus 1 x x x

The items under this head are:(i) Capital Reserve(ii) Capital Redemption Reserve**(iii) Securities Premium Reserve(iv) Revaluation Reserve **(v) Share Option Outstanding Account **(vi) Other Reserve ( Only General Reserve)(vii) Surplus ( Balance in Statement of Profit & Loss)

Securities Premium Reserve- It shall be used to write off the items under Section 78 of the CompaniesAct and the balance if any will be shown under the head ‘Reserve and Surplus’.

Notes to Accounts: 2Particulars Amount (`)

Securities Premium Reserve x x xLess Discount on issue of shares written off (xx) x x x

Surplus-Debit balance of Statement of Profit and Loss shall be shown as a negative figure under the head ‘Surplus’.The balance of ‘Reserve and Surplus’, after adjusting negative balance of surplus, if any, shall be shownunder the head ‘Reserves and Surplus’ even if the resulting figure is in negative.

4

Notes to Accounts: 3Particulars Amount (`)

Statement of P/L x x xLess Discount on issue of shares written off (xx) Underwriting Commission (xx) Share Issue Expenses (xx) Interest on calls in advance (xx)Add interest on calls in Arrear xx x x x / (x x x)

(c) Money received against share warrants **:A share warrant is a financial instrument which gives the holder the right to acquire equity sharesspecified therein at a specified date at a predetermined price. A disclosure of the money receivedagainst share warrants cannot be shown as part of share capital but included in shareholder’s funds.(Students need to know only its meaning and under which heading / sub-heading this itemappear in the Revised Schedule VI).

2. Share application money pending allotment**:If a company has received application money but the date of allotment falls after the B/S date, suchapplication money pending allotment and to the extent not refundable is to be shown under this head.(Students need to know only its meaning and under which heading / sub-heading this itemappear in the Revised Schedule VI)

3. Non - Current Liabilities: Those liabilities which are not classified as Current Liabilities(a) Long Term Borrowings: Borrowings mean amount taken as loan by the company. Bonds / Debentures Premium payable on redemption of debentures. Term loans from banks / other parties Fixed Deposits / Public Deposits Other loans and advances

(b) Deferred Tax Liability (Net) **: (Students need to know only its meaning and under whichheading / sub-heading this item appear in the Revised Schedule VI).

A deferred tax liability comes in to force when accounting income is more than taxable income.

(c) Other Long Term Liability **

(d) Long Term ProvisionsProvision is the amount set aside to meet future liability, the amount of which cannot bedetermined with reasonable accuracy. Long Term Provisions are the provisions against which theliability will arise after 12 months from the date of the B/S. Provision for employee benefits (beyond 12 months)** Other Provisions

5

Current Liabilities:Current Liability as defined in the Revised Schedule VI of the Companies Act, 1956 is:(i) Expected to be settled in the company’s normal operating cycle; or(ii) Due to be settled within 12 months from the date of the B/S(iii) Held primarily for the purpose of being traded(iv) No unconditional right to defer settlement beyond 12 months of the B/S.

An operating cycle is the time between the acquisition of assets for processing and there realisation incash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to haveduration of twelve months.

(a) Short- term Borrowings: Are all borrowings of the company which are due for payment within12 months from the date of the loan. Loans repayable on demand from banks Overdraft Cash Credit Loans from other (related) parties Deposits

(b) Trade Payables: Amount Payable against purchase of goods or services received in the ordinarycourse of the business. Sundry Creditors Bills Payable

(c) Other Current Liabilities: All current liabilities that are not short-term borrowings or tradepayables Current Maturities of Long-Term Debt: That part of the long term debt which is due for

payment within 12 months of the date of the B/S. Interest accrued but not due on borrowings: Example- interest is payable on debentures half

yearly on 30th June and 31st December. If the company closes its books on 31st March, it willhave to provide interest for the quarter Jan to March following the accrual concept ofaccounting. But since this interest along with the interest from April to June will become duefor payment on 30th June, it will be classified as ‘interest accrued but not due’.

Interest accrued and due on borrowings: Interest is payable on debentures half yearly on 30th

June and 31st December. If the company closes its books on 31st March and interest providedin the books for June to Dec has not been paid till 31st March, it will be classified as ‘interestaccrued and due’.

Income received in advance Unpaid Dividend: Dividends paid but they remain unclaimed by shareholders. Excess application money due for refund and interest due thereon** Unpaid matured deposits and interest thereon** Unpaid matured debentures and interest thereon** Outstanding expenses Unclaimed dividend Calls-in-advance Provident Fund Payable**

(d) Short Term Provisions:- Provisions against which liability is likely to arise within 12 monthsfrom the date of the B/S. Provision for employee benefits (to be settled within 12 months) ** Provision for tax Provision for expenses

6

Proposed Dividend Provision for doubtful debts Provision for discount on debtors Other provisions**

ASSETS1. Non-Current Assets: Those assets which are not current assets.

(a) Fixed Assets(i) Tangible Assets: Assets which can be physically seen and touched Land Building Plant and Equipment Furniture and Fixture Vehicles Office Equipment Others

It is necessary to give the following information regarding each class or kind of fixedtangible asset:a. Original costb. Addition (purchase)c. Deductions (sale)d. Total depreciation written off or provided for up to the end of the year.

(ii) Intangible Assets : Goodwill Brands / Trademark Computer software ** Mastheads (name of newspaper or magazine printed at the top of the page) and publishing

titles ** Mining rights ** Copyrights and patents Recipes, formulae, models and designs ** Licenses and franchise. **(However students need to know under which heading / sub-heading the items marked **above appear in the Revised Schedule VI)

(iii) Capital Work-in-Progress: ** (Students need to know only the meaning and underwhich heading / sub-heading the items appear in the Revised Schedule VI).Self constructed item of property, plant and equipment

(iv) Intangible Assets under development: ** (Students need to know only the meaning andunder which heading / sub-heading the items appear in the Revised Schedule VI).Patents, intellectual property rights etc which are being developed by the company.

7

(b) Non-Current Investments:Investments which are held not with the purpose to resell but to retain them.(i) Trade Investments: Investments made by the company in shares or debentures of another

company, not being its subsidiary, to promote its own trade and business.(ii) Other investments: Which are not trade investments. Investments in property ** In equity shares ** In preference shares ** In debentures ** In mutual funds ** In partnership firms ** In govt. securities **(However students need to know the heading / sub-heading under which the items marked** above appear in the Revised Schedule VI)

(c) Deferred Tax Asset (Net): ** (Students need to know only its meaning and under which heading /sub-heading this item appear in the Revised Schedule VI).

A deferred tax liability comes in to force when taxable income is more than accounting income.

(d) Long Term Loans and Advances:Expected to be received back in cash or in kind after 12 months from the date of the B/S.(i) Capital Advances: Advanced for acquiring fixed assets(ii) Security Deposits: Deposit for electricity, telephone etc given for a period beyond 12 months.(iii) Other loans and advances Long term loan to employees Long term advance to suppliers etc

(e) Other Non-Current Assets Long term Trade Receivables-** receivable 12 months from the date of the B/S if the operating

cycle is less than 12 months or beyond the operating cycle if the operating cycle is more than 12months.

Others** Insurance claim receivable** Debts due by directors or other officers of the company**

2. Current Assets: Those assets which are:(i) Expected to be realised in or intended for sale or consumption in the normal operating cycle(ii) Held primarily for the purpose of trading(iii) Expected to be realised within 12 months from the date of the B/S(iv) Cash and cash equivalent.

(a) Current Investments: Those investments which are held to be converted into cash within ashort period, ie, within 12 months from the date of purchase of the investment. Investments in partnership firms ** In equity shares** In preference shares ** In debentures ** In mutual funds ** In govt. securities **

8

Short Term Investment (to be taken as cash equivalent while preparing Cash FlowStatement).

Marketable Securities (to be taken as cash equivalent while preparing Cash FlowStatement).

(b) Inventories : Refers to stock held for the purpose of trade in the normal course of thebusiness, ie, for manufacturing or trading of goods.(i) Raw Materials(ii) Work-in-Progress(iii) Finished Goods(iv) Stock-in-Trade(v) Stores and Spares(vi) Loose Tools(vii) Goods - in – Transit **

(c) Trade Receivables:Refers to the amount due on account of goods sold or services rendered in the normal courseof business. It includes: Debtors Bills Receivable

(d) Cash and Cash Equivalents: Balance with banks (includes bank deposits having a maturity period of more than 3

months but not exceeding 12 months from the date of the B/S) Cheques, drafts on hand Cash on hand Earmarked balances with banks (for eg for unpaid divided)* Balances with banks held as margin money.* Bank deposits with more than 12 months maturity*

(e) Short-term Loans and Advances:Expected to be realised within 12 months from the B/S date or within the operating cycles, ifthe operating cycle is more than 12 months. Loans and advances to related parties Others

(f) Other Current Assets Prepaid expenses Dividend receivable Interest accrued on investments Advance Tax

3. Contingent Liabilities and Capital Commitments:

(a) Contingent Liabilities: These liabilities refer to the claims which are uncertain to arise becausethey are dependent on a happening in future.They are not recorded in the books of accounts but disclosed in the Notes to Accounts. Claim against the company not yet acknowledged as debt Liabilities for bills discounted Guarantee given by the company

9

(b) Capital CommitmentsA future liability for capital expenditure in respect of which contracts have been made. Uncalled amount on partly paid up shares Estimated amount of capital contracts remaining to be executed and not provided for (penalty). Other commitments: eg Arrears of cumulative dividend

FORMAT OF STATEMENT OF PROFIT AND LOSS

PART-IISTATEMENT OF PROFIT AND LOSS

Preparation of Part II of Schedule VI / Revised Schedule VI is excluded from the scope of syllabus of ISC2014 examination.However, for the preparation of the Comparative and Common Size Income Statement (Section B- Unit 4in the scope of syllabus of ISC 2014 examination), the extent and format of the Statement of Profit andLoss has been modified. The modified version of the Statement of profit and Loss is as follows:Name of the Company....................Statement of Profit and Loss for the year ended.........................

Rupees in ..............Particulars Note

No.Figures for the

current reportingperiod

Figures for theprevious reportingperiod

i. Revenue from operation x x x xii. Other Income x xiii. Total Revenue (i + ii) x x x x x xiv. Expenses

Cost of Materials ConsumedPurchases of Stock-in-TradeChanges in inventories of FinishedGoods, Work-in-Progress and Stock-in-TradeEmployee Benefit ExpensesFinance CostsDepreciation and AmortisationExpensesOther ExpensesTotal expenses

xx

xxx

xx

xxx

xx

xxx

xx

xxxv. Profit before Tax (iii – iv) xxx xxxvi. Less Tax (x) (x)vii. Profit after Tax (v – vi) xx xx

10

ITEMS UNDER VARIOUS HEADS APPEARING IN STATEMENT OFPROFIT AND LOSS

Revenue from operation: Net Sales Sale of scrap Trading Commission received Cash Discount received Revenue from services

Other Income: Rent received Interest and Dividend Received Profit from Sale of Fixed Assets/ Investments

Cost of Materials ConsumedOpening Stock of Materials + Net Purchases – Closing Stock of Materials

Purchases of Stock-in-TradeNet Purchases

Changes in inventories of Finished Goods, Work-in-Progress and Stock-in-TradeOpening Stock – Closing Stock

Employee Benefit Expenses Wages Salaries Staff Welfare Expenses such as canteen expenses Contribution to Provident Fund and other staff welfare funds.**

Depreciation and Amortisation Expenses

Finance CostsAmount of interest paid by the company on its borrowings

Other ExpensesIncludes expenses other than the above six heads of expenses. These could be: Telephone expenses Rent and Taxes Selling and Distribution Expenses Advertisement Expenses Loss on sale of Fixed Assets / Investments Cash Discount allowed Bad debts Provision for bad and doubtful debts

Provision for tax/tax rate

11

Format of Comparative Balance SheetComparative Balance Sheet as at 31st March 2014 and 2013

Particulars NoteNo.

2013-14 2012-13 AbsoluteChange(IncreaseDecrease)

%(IncreaseDecrease)

1. 2 3. 4. 5.I. EQUITY AND LIABILITIES

1. Shareholders Funds(a) Share Capital(b) Reserves and Surplus

2. Non- Current Liabilities(a) Long- term borrowings(b) Long-term provisions

3. Current Liabilities(a) Short term borrowings(b) Trade payables(c) Other current liabilities(d) Short term provisions

TOTALII. ASSETS1. Non- Current Assets

(a) Fixed Assets(i) Tangible Assets(ii) Intangible Assets

(b) Non-current Investment(c) Long term loans and advances

2. Current Assets(a) Current Investments(b) Inventories(c) Trade Receivables(d) Cash and cash equivalents(e) Short-term loans and advances(f) Other current assets

TOTAL

12

FORMAT OF COMPARATIVE STATEMENT OF PROFIT AND LOSS

Comparative Statement of Profit and Loss for the years ending 31st March 2014 and 2013

Particulars NoteNo.

2013-14 2012-13 AbsoluteChange(IncreaseDecrease)

%(IncreaseDecrease)

1. 2 3 4 5A B (A –B)=C

100C

DB

i. Revenue from operationii. Other Incomeiii. Total Revenue (i + ii) xxx xxx xxx xxxiv. Expenses

Cost of Materials ConsumedPurchases of Stock-in-TradeChanges in inventories of FinishedGoods, Work-in-Progress andStock-in-TradeEmployee Benefit ExpensesFinance CostsDepreciation and AmortisationExpensesOther ExpensesTotal expenses xxx xxx xxx xxx

v. Profit before Tax (iii – iv) xx xx xx xxvi. Less Tax (x) (x) (x) (x)vii. Profit after Tax (v – vi) x x x x

Important Note: Comments on Comparative/ Common size financial statements are not a part of the scopeof the syllabus.

13

Format of Common Size Balance SheetCommon Size Balance Sheet as at 31st March 2014 and 2013

Absolute Amount % of Balance SheetTotal

Particulars NoteNo.

2013-14 2012-13 2013-14 2012-13I. EQUITY AND LIABILITIES1. Shareholders Funds

(a) Share Capital(b) Reserves and Surplus

2. Non- Current Liabilities(a) Long- term borrowings(b) Long-term provisions

3. Current Liabilities(a) Short term borrowings(b) Trade payables(c) Other current liabilities(d) Short term provisions

TOTAL 100 100II. ASSETS1. Non- Current Assets

(a) Fixed Assets(i) Tangible Assets(ii) Intangible Assets

(b) Non-current Investments(c) Long term loans and advances

2. CURRENT ASSETS(a) Current Investments(b) Inventories(c) Trade Receivables(d) Cash and cash equivalents(e) Short-term loans and advances(f) Other current assets

TOTAL 100 100

14

Format of Common Size Statement of Profit and Loss AccountCommon Size Statement of Profit and Loss for the years ending 31st March 2014 and 2013

Absolute Amount % of Rev fromOperation

Particulars NoteNo.

2013-14 2012-13 2013-14 2012-13i. Revenue from operation 100 100ii. Other Incomeiii. Total Revenue (i + ii) xxx xxx xxx xxxiv. Expenses

Cost of Materials ConsumedPurchases of Stock-in-TradeChanges in inventories ofFinished Goods, Work-in-Progress and Stock-in-TradeEmployee Benefit ExpensesFinance CostsDepreciation and AmortisationExpensesOther ExpensesTotal expenses xxx xxx xxx xxx

v. Profit before Tax (iii – iv) xx xx xx xxvi. Less Tax (x) (x) (x) (x)vii. Profit after Tax (v – vi) x x x x

RATIO ANALYSIS

The formulae of a few Ratios will be affected due to the items in Revised Schedule Part I and II. These willinclude only those items which are to be evaluated in 1SC 2014 Examination. The revised formulae /components and terms are as follows:

(a) Liquidity Ratios:

1. Current Ratio:Current Assets

Current Liabilities

Current Assets = Current Investments + Inventories (excluding Loose Tools and SpareParts) + Trade Receivables + Cash and Cash Equivalents + Short-termLoans and Advances + Other Current Assets

Current Liabilities = Short term borrowings + Trade payables + Other Current Liabilities +Short term Provisions

15

2. Quick Ratio / Liquid Ratio:Quick Assets

Quick Liabilities

OR

All Current Assets- Inventories(excluding Loose Tools and Spare Parts)- Prepaid Expenses

All Current Liabilities - Bank Overdraft

OR

Liquid Assets

Liquid Liabilities

Quick Liabilities / Liquid Liabilities = All Current liabilities – Bank Overdraft

(b) Solvency Ratios:

1. Debt to Equity Ratio:Debt / Long Term Debt

Equity / Shareholders' Funds

Debt = Long Term Borrowings + Long Term Provisions

Equity / Shareholders’ Funds = Share Capital + Reserves and SurplusOr

Non Current Assets + (Current Assets – Current Liabilities) - NonCurrent Liabilities

= Non Current Assets + Working Capital- Non Current Liabilities

= (Tangible Assets + Intangible Assets + Non Current Investments +Long Term Loans and Advances) + Working Capital – (LongTerm Borrowings + Long Term Provisions)

2. Proprietary Ratio:Shareholders Funds/ Equity

Total Assets

Total Assets = Non Current Assets + Current Assets

= Tangible Assets + Intangible Assets + Non CurrentInvestments + Long Term Loans and Advances

+Current Investments + Inventories (including Loose Tools andSpare Parts) + Trade Receivables + Cash and Cash Equivalents +Short-term Loans and Advances + Other Current Assets

3. Total Assets to Debt Ratio:Total Assets

Debt

16

4. Interest coverage ratio =Net profit before interest and taxes

Interest

(c) Activity Ratios:

1. Debtors Turnover Ratio will be replaced by Trade Receivable Turnover Ratio: =

Credit Revenue from Operation

Average Trade Receivable

Credit Revenue from Operation = Revenue from Operation – Cash Revenue from Operation

Average Trade Receivables =Opening Trade Receivable Closing Trade Receivable

2

2. Creditors Turnover Ratio will be replaced by Trade Payable Turnover Ratio: =

Net Credit Purchases

Average Trade Payable

Average Trade Payables =Opening Trade Payable Closing Trade Payable

2

3. Working Capital Turnover Ratio =Revenue from Operations

Working Capital

4. Stock Turnover Ratio will be replaced by Inventory Turnover Ratio =

Cost of Goods Sold

Or

Cost of Revenue from Operation

Average Inventory

Cost of goods sold= Opening Stock + Net Purchases + Direct Expenses – Closing Stock

Cost of Revenue from Operations = Revenue from Operations – Gross Profit

Or

Cost of Material Consumed (including direct expenses) + Change in inventories of WIP andFinished Goods

Or

Opening Inventory + Net Purchases+ Direct Expenses – Closing inventory

Average Inventory =Opening Inventory Closing Inventory

2

17

(d) Profitability Ratios:

1. Gross Profit Ratio:Gross Profit

100Revenue from Operations

Gross Profit = Revenue from Operations – Cost of Revenue from Operations/Cost of Goods Sold

Cost of Revenue from Operations = Cost of Material Consumed (including direct expenses) + Changein inventories of WIP and Finished Goods

Or

Opening Inventory + Net Purchases+ Direct Expenses – Closinginventory

2. Net Profit Ratio: =Net Profit

100Revenue from Operations

Net Profit = Gross profit + Other Income – Indirect Expenses – Tax

3. Operating Ratio:

Cost of Revenue from Operations/Cost of Goods Sold Operating Expenses100

Revenue from Operations

Operating Expenses = Employee Benefit Expenses + Depreciation and Amortisation Expenses + Sellingand Distribution Expenses+ Office and Administrative Expense.

4. Operating Profit Ratio:Net Operating Profit

100Revenue from Operations

Net operating profit = Net Profit after Tax+ Non-Operating Expenses – Non Operating IncomesOr

Gross Profit – Operating Expenses + Operating Incomes

Non Operating Expenses = Interest on Debentures / Long Term Loans + Loss on sale of Non CurrentAssets

Non Operating Incomes = Interest Received on Investment + Profit on sale of Non Current Assets

5. Earning per share:Net Profit after Tax and Preference Dividend

No. of Equity Shares

18

SPECIMEN QUESTIONS

Revised Schedule VI

Question 1Name the major heads under which the Equity & Liabilities are shown in a company’s BalanceSheet prepared as per Revised Schedule VI Part I of the Companies Act.

Solution:The major heads are:

(i) Shareholders’ Funds(ii) Share Application Money pending allotment(iii) Non- Current Liabilities(iv) Current Liabilities

Question 2List the heads under the heads Shareholders Funds in a company’s Balance Sheet prepared as perRevised Schedule VI Part I of the Companies Act.

Solution:(a) Share Capital(b) Reserves and Surplus(c) Money received against Share Warrants

Question 3Under which heads and sub heads will you the following items appear inthe Balance Sheet of a company as per Revised Schedule VI Part I of theCompanies Act 1956:

(i) Loose Tools(ii) Bills Receivable(iii) Debentures(iv) Patents

Solution:Item Head Sub- HeadLoose Tools Current Liabilities InventoryBills Receivable Current Assets Trade ReceivablesDebentures Non Current Liabilities Long Term BorrowingPatents Non Current Assets Fixed Assets- Intangible

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Question 4From the following particulars of Ronald Ltd. , prepare its Balance Sheet as at 31st March, 2013 (asper Revised Schedule VI of the Companies Act, 1956) along with Notes to Accounts.

`Authorised Equity Share Capital (10,000 shares @Rs10) 1,00,000Authorised 6% Preference Share Capital (1,000 shares @Rs100) 1,00,000Issued Equity Share Capital (7,000 shares @Rs10) 70,000Issued 6% Preference Share Capital (1,000 shares @Rs100) 1,00,000Subscribed Equity Share Capital (5,000 shares,` 8 called up,

Calls in arrear` 3 on 100 shares)Subscribed 6% Preference Share Capital (1,000 shares @Rs100) 1,00,000500, 5% Debentures of` 1000 each 5,00,000Short term loan from bank 10,000Debtors 5,000Provision for Doubtful Debts 200Provision for Taxation 1,000General Reserve 4,000Statement of P/L (Dr) 6,000Marketable Securities 500

Solution:

Balance Sheet of Ronald Ltd.as at 31st March, 2013

Particulars NoteNo. 31.03.2013 31.03.2012

1. 2 3 4.I. EQUITY AND LIABILITIES

Shareholders Funds(a) Share Capital(b) Reserves and Surplus

Non- Current LiabilitiesLong- term borrowings

Current Liabilities(a) Short term borrowings(b) Short term provisions

12

3

45

1,37,700(2,000)

5,00,000

10,0001,200

TOTALII. ASSETS

Current Assets(a) Current Investments(b) Trade Receivables

67

5005,000

TOTAL

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Notes to Accounts:Particulars Amount (Rs)

1. Share CapitalAuthorised Capital10,000 equity shares of ` 10 each1000 6% Preference shares of `100 each

Issued Capital7,000 shares of ` 10 each1000 6% Preference shares of `100 each

Subscribed CapitalSubscribed and fully paid up1000 6% Preference shares of `100 each

Subscribed but not fully paid up5000 equity shares of ` 10 each, `8 called up 40,000Less calls-in-arrear (300)

2. Reserves and SurplusGeneral Reserve 4,000Statement of P/L (6,000)

3. Non-current Liabilities500, 5% Debentures of ` 1000 each

4. Current LiabilitiesShort term borrowingsShort term loan from bank

5. Current LiabilitiesShort term provisionProvision for Tax 1,000Provision for Doubtful Debts 200

6. Current AssetsCurrent InvestmentsMarketable Securities

7. Current AssetsTrade Receivables

Debtors

1,00,0001,00,000

2,00,000

70,0001,00,0001,70,000

1,00,000

37,7001,37,700

(2000)

5,00,000

10,000

1,200

500

5000

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Comparative and Common Size Financial Statements

Question 5(i) Give one use and one limitation of a Common Size Statement

Solution:Use: It shows the changes in various items in relation to Revenue from Operations, Total Assets and TotalLiabilities)Limitation: It explains the percentage of each item to the total sum (Revenue from Operations, Total Assetsand Total Liabilities) but does not express the changes of the items between the two periods.

(ii) From the following particulars, prepare a Comparative Balance Sheet of Rima Ltd.Particulars 31.03.2013

Rs31.03.2012

RsShare CapitalFixed Assets6% Government Bonds5% DebenturesReserves and SurplusShort Term InvestmentInventoriesTrade payablesCash and Cash equivalents

33,00,00040,00,000

6,00,00016,00,000

2,00,0004,00,0006,00,0006,00,0001,00,000

32,00,00035,00,000

6,00,00014,00,000

5,00,0005,00,0008,00,0005,00,0002,00,000

Solution:Comparative Balance Sheet of Rima Ltd.as at 31st March 2012 and 2013

Particulars NoteNo.

2012-13 2011-12 AbsoluteChange(IncreaseDecrease)(Base year-2011-12)

%(IncreaseDecrease)(Baseyear-2011-12

1. 2 3. 4. 5.I. EQUITY AND LIABILITIES

Shareholders Funds(a) Share Capital(b) Reserves and Surplus

Non- Current LiabilitiesLong- term borrowings

Current LiabilitiesTrade payables

33,00,0002,00,000

16,00,000

6,00,000

32,00,0005,00,000

14,00,000

5,00,000

1,00,000(3,00,000)

2,00,000

1,00,000

3.125(60)

14.23

20

TOTAL 57,00,000 56,00,000 1,00,000 1.79II. ASSETS

Non- Current Assets(a) Fixed Assets(b) Non-current Investment

Current Assets(a) Current Investments(b) Inventories(c) Cash and cash equivalents

40,00,0006,00,000

4,00,0006,00,0001,00,000

35,00,0006,00,000

5,00,0008,00,0002,00,000

5,00,000--

(1,00,000)(2,00,000)(1,00,000)

14.29-

(20)(25)(50)

TOTAL 57,00,000 56,00,000 1,00,000 1.79

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Question 6(i) What is a Comparative Balance Sheet?

Solution:Comparative Balance Sheet of an enterprise shows the increase / decrease in its assets, liabilities andcapital in one year as compared to another year/ years.

(ii) From the following particulars, prepare a Common Size Balance Sheet of Rima Ltd.

Particulars 31.03.2013`

31.03.2012`

Share CapitalFixed Assets6% Government Bonds5% DebenturesReserves and SurplusShort Term InvestmentInventoriesTrade payablesCash and Cash equivalents

33,00,00040,00,000

6,00,00016,00,000

2,00,0004,00,0006,00,0006,00,0001,00,000

32,00,00035,00,000

6,00,00014,00,000

5,00,0005,00,0008,00,0005,00,0002,00,000

Solution:Common Size Balance Sheet of Rima Ltd.

as at 31st March 2013 and 2012Absolute Amount % of Balance Sheet

TotalParticulars Note

No.2012-13 2011-12 2012-13 2011-12

I. EQUITY AND LIABILITIESShareholders Funds(a) Share Capital(b) Reserves and Surplus

Non- Current LiabilitiesLong- term borrowings

Current LiabilitiesTrade payable

33,00,0002,00,000

16,00,000

6,00,000

32,00,0005,00,000

14,00,000

5,00,000

57.893.51

28.07

10.53

57.148.93

25.00

8.93TOTAL 57,00,000 56,00,000 100 100

II. ASSETSNon- Current Assets(a) Fixed Assets(b) Non-current InvestmentsCurrent Assets(a) Current Investments(b) Inventories(c) Cash and cash equivalents

40,00,000 6,00,000

4,00,0006,00,0001,00,000

35,00,000 6,00,000

5,00,0008,00,0002,00,000

70.1710.53

7.0210.53

1.75

62.5010.71

8.9314.29 3.57

TOTAL 57,00,000 56,00,000 100 100

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Question 7

From the following particulars,(i) Prepare a Comparative Statement of Profit & Loss of Prudence Ltd.(ii) Prepare a Common Size Statement of Profit & Loss of Prudence Ltd

Particulars 2103 2012Revenue from operations `5,00,000 ` 3,00,000Cost of materials consumed 60% of revenue from

operations50% of revenue fromoperations

Indirect Expenses 30% of cost of materialsconsumed

20% of cost of materialsconsumed

Tax Rate 40% of Net Profit beforeTax

40% of Net Profit beforeTax

Solution:Comparative Statement of Profit and Loss

for the years ending 31st March 2013 and 2012

Particulars NoteNo.

2012-13 2011-12 AbsoluteChange(Increase /Decrease)Base Yr2011-12

%(Increase /Decrease)

Base Yr2011-12

Revenue from Operations

Less ExpensesCost of Materials ConsumedIndirect ExpensesTotal expenses

Profit before Tax

Less Tax

Profit after Tax

5,00,000

3,00,00090,000

3,90,000

1,10,000

(44,000)66,000

3,00,000

1,50,00030,000

1,80,000

1,20,000

(48,000)72,000

2,00,000

1,50,00060,000

2,10,000

(10,000)

(4,000)(6,000)

66.67

100.00200.00116.67

(8.33)

(8.33)(8.33)

Common Size Statement of Profit and Lossfor the years ending 31st March 2013 and 2012

Particulars NoteNo.

Absolute Amount2012-13 2011-12

% of Rev from operation 2012-13 2011-12

Revenue from Operations

Less ExpensesCost of Materials ConsumedIndirect ExpensesTotal expenses

Profit before Tax

Less Tax

Profit after Tax

5,00,000

3,00,00090,000

3,90,000

1,10,000

(44,000)66,000

3,00,000

1,50,00030,000

1,80,000

1,20,000

(48,000)72,000

100

60.0018.0078.00

22.00

8.8013.20

100

50.0010.0060.00

40.00

16.0024.00

24

Ratio AnalysisQuestion 8

(i) Assuming that the Debt-Equity ratio is 2, state whether this ratio would increase, decrease orremain unchanged in the following cases:

(a) Issue of new shares for cash(b) Repayment of a long term bank loan.

Solution:(a) Decrease(b) Decrease

(ii) From the following information, calculate(a) Liquid Ratio(b) Working Capital Turnover Ratio(c) Operating Ratio(d) Net Profit Ratio

Give the answer up to two decimal places.

`Cost of Revenue from Operations 6,00,000

Operating Expenses 50,000

Revenue from Operations 8,00,000

Sales Returns 10,000

Total Current Assets 3,00,000

Total Current Liabilities 1,00,000

Total Assets 7,00,000

Closing Inventory 30,000

Prepaid Insurance 5,000

Solution:

(a) Liquid Ratio =Quick Assets

Quick Liabilities

=3,00,000 30,000 5,000

1,00,000

=2,65,000

1,00,000 = 2.65:1

25

(b) Working Capital Turnover Ratio=Cost of Revenue from Operations

Working Capital

=8,00,000 10,000

3,00,000 1,00,000

=7,90,000

2,00,000 = 3.95 times

(c) Operating Ratio=Cost of Revenue from Operations operating expenses

Net Revenue from Operations

x100

=6,00,000 50,000

8,00,000 10,000

x100

=6,50,000

7,90,000x100 = 82.28%

(d) Net Profit Ratio=Net Profit

Net Revenue from Operationsx 100

=Gross Profit-Operating expenses

Net Revenue from Operationsx100

=1,90,000 50,000

7,90,000

x100 = 17.72%

Question 9

(i) How will you assess the liquidity of a business?

Solution:The liquidity of a business is assessed by calculating its Current Ratio and Liquid Ratio.

(ii) Calculate Gross Profit Ratio from the following information:

Cash Revenue from Operations is 1/4th of the total Revenue from Operations.Cash Revenue from Operations were ` 8,00,000.Credit Purchases are 1/5th of the total purchases.Credit Purchases were ` 3,00,000.Opening Inventory ` 1,00,000. Closing Inventory was ` 40,000 more than the openinginventory.Wages ` 30,000Carriage outward ` 10,000.

26

Solution:Cash Revenue = 1/4th of the total revenue from operations = 8,00,000So Total Revenue from Operations= 8,00,000 x 4 = 16,00,000

Credit Purchases = 1/5th of the total purchases = 3,00,000So Total Purchases = 3,00,000 x 5 = 15,00,000

Cost of Revenue from Operations = Net Purchases + Direct Expenses + Change in Inventory= 15,00,000 + 30,000 – 40,000= 14,90,000

Gross Profit = Revenue from Operations - Cost of Revenue from Operations= 16,00,000 – 14,90,000= 1,10,000

Gross Profit Ratio=Gross Profit

Net Revenue from Operationsx 100

=1,10,000

16,00,000 x 100 = 6.68%.

Cash Flow Statement- Sample Question

From the following Balance Sheets of Humility Ltd., prepare its Cash Flow Statementfor the year 2012-13 (as per AS 3).

Particulars Note No. 2012-13 2011-12I. EQUITY AND LIABILITIES

Shareholders Funds(a)Share Capital(b)Reserves and Surplus

Non- Current LiabilitiesLong- term borrowings

Current Liabilities(a) Trade payable(b)Short Term Provision

1

2

3

33,00,0005,00,000

16,00,000 3,00,000

50,000

32,00,0004,00,000

15,00,000 5,00,000

40,000

TOTAL 57,50,000 56,40,000II. ASSETS

Non- Current Assets(a) Fixed Assets

(i) Tangible(ii) Intangible

(b) Non-current InvestmentsCurrent Assets(a) Current Investments(b) Trade Receivables(c) Inventories(d) Cash and cash equivalents

4

5

39,50,00050,000

6,00,000

10,00050,000

6,00,0004,90,000

34,60,00040,000

6,00,000

30,00040,000

8,00,0006,70,000

TOTAL 57,50,000 56,40,000

27

Notes to Account1. Reserves and Surplus: 2012-13(`) 2011-12(`)

General Reserve 3,50,000 2,80,000Statement of P/L 1,50,000 1,20,000

5,00,000 4,00,0002. Long Term Borrowings

10% Debentures 16,00,000 15,00,000

3. Short Term ProvisionProposed Dividend 20,000 13,000Provision for Taxation 30,000 27,000

50,000 40,000Fixed Assets

Tangible- P/M 39,50,000 34,60,000Intangible Assets- Goodwill 50,000 40,000

40,00,000 35,00,000

4. Current InvestmentsMarketable Securities 10,000 30,000

Additional Information:

(i) The debentures were issued on 1.4.2012(ii) Machinery costing ` 70,000 (accumulated depreciation thereon `10,000) was sold for `

45,000.(iii) Machinery costing ` 8,00,000 was purchased during the year.(iv) Dividend of ` 11,000 was paid during the year.