ACCOUNTANCY
PACKAGE FOR SLOW LEARNERS
Ques.What is the importance of Financial Statements?
Ans.Financial statements are comprehensive way of communicating financial information to the users of accounting information.
Ques.Give one limitation of Balance sheet.
Ans.Balance sheet does not show the value of qualitative factors such as skill and loyalty of the
staff because it can not be measured in terms of money.
Ques.Name two sections of balance sheet.
Ans.1. Equity and liabilities 2. Assets
Ques.Name the major headings under which the asset part of a company's Balance Sheet is organised and presented?
Ans.1.Non-current Assets2. Current Assets
Ques.Name the major headings under which the equity and liabilities part of company's Balance Sheet is organised and presented?
Ans.The major headings of Equity and liabilities are:
1. Shareholder's fund
2. Share application money pending allotment
3. Non-current Liabilities
4. Current liabilities
Ques.Name the sub headings under which share holder's fund is shown in company's Balance Sheet.
Ans.Shareholder's fund is shown as follows:
(A) share capital
(b) Reserve and surplus
(c) money received against share warrant
Ques.Name any two items shown under the heading Non-current Liabilities.
Ans.Long term borrowings and Deferred tax liabilities
Ques.Name any two items shown under the heading Current liabilities.
Ans. Short term borrowing and Trade payables
Ques. Name any two reserves shown under “ Reserves and surplus”.
Ans.Capital reserve and capital redemption reserves
Ques.Name the head under which Calls in advance is shown in company's Balance sheet.
Ans.Calls in advance is shown under the head Current liabilities and sub heading other current liabilities.
Ques.What is contingent liability?
Ans. Contingent liability is a liability which may become payable depending on a happening in future.
Ques. Mention any two items of contingent liability of a company.
Ans.(i) Claims against company which are not accepted by the company.
(ii) Liability for amount uncalled or partly paid shares.
(iii) arrears of fixed cumulative dividend(on preference shares)
Ques. List any three items that can be shown under the heading Reserve and surplus.
Ans.(1) Capital Reserves
(2) Capital redemption reserves
(3) Debenture redemption reserves
Ques.List sub headings which are shown under the heading Current Liabilities as per schedule III part I of Companies Act 2013.
Ans. (1) Short term Borrowings
(2) Trade Payables
(3) Other Current Liabilities
(4) Short term provisions.
Ques.List sub headings which are shown under the heading Current Assets as per schedule III part I of Companies Act 2013.
Ans.(1) Current investments
(2) inventories
(3) trade receivables
(4) cash and cash equivalents
(5) Short term loans and advances
(6) Other current assets
Ques.Under which major headings and sub-headings will the following items be shown in the balance sheet of a comapany as per schedule III part 1 of the companies Act 2013:
i)Provision for tax
ii)Loose tools
iii)Interest accrued on investment
iv)Goodwill
v)Long term investment
vi)Motor car
vii)Security premium reserve
viii)Unclaimed dividend
ix)Debit balance of surplus
x)Computer software under development
Ans.
i)Current liabilityshort term provision
ii)Current assetsinventories
iii) Current assetsother current assets
iv) current assetsinventories
i)current assetsother current assets
ii)Non current assetsfixed assets- tangible assets
iii)shareholder’s fundReserves and surplus
iv)current liabilityother current liability
v)shareholder’s fundReserves and surplus
vi)Non current assetsfixed assets- Intangible assets
Under development
CHAPTER 2
ANALYSIS OF FINANCIAL STATEMENTS
Ques.State any one objective of Financial Statement Analysis.
Ans.To know long term as well as short term solvancy of the firm.
Ques.State any one limitation of Financial Statement Analysis.
Ans.It ignores price level changes.
Ques.State the significance of analysis of financial statements to top management.
Ans. It is useful for taking financial decisions or preparing budgetary programmes.
Ques.Stare why shareholders are interested in analysing financial statements?
Ans.They are interested in the profitability,dividends, market value of their holdings and long term solvancy of the business, so they are interested in analysing financial statements.
Ques.Name the three financial characteristics which are analysed by financial analysis.
Ans. Profitability , Liquidity and Solvancy
Ques.How is financial strength of a business unit assessed?
Ans. The financial strength of a business unit can be assessed on the basis of its earning capacity and its ability to pay debts and dividends.
Ques why are creditors interested in analysing financial statements?
Ans creditors are interested in analysingfinanacial statements so that they can assess the financial position of the enterprise before giving loans or granting credit.
Ques.give two purposes which are served by analysis of financial statements.
Ans. 1. It helps to determine the creditworthiness and earning potential of a business entity.
2. Long term as well as short term solvecy can be determined with the help of analysis of financial statements.
Ques.Why are investors interested in analysing financial statements?
Ans.Investors are interested in analysing the financial statements to assess the safety of their investments.
Ques. State the interest of tax authorities in the analysis of financial statements.
Ans.Tax authorities are interested to analyse the financial statements to know about the performance of company and to collect vaarious types of taxes.
Ques. State the interest of trade unions in the analysis of financial statements.
Ans.Employees and trade unions are interested in their welfare i.e better emoluments, bonus,better working conditions and security of their jobs. So they are always interested in profitability and strength of the concern.
Ques.How is the financial statements analysis useful to Manager/ Finance Manager.
Ans.For taking financial decisionfor the business it helps to throw the light on the financial strengths and weaknesses of the business units.
CHAPTER 3
TOOLS OF FINANCIAL STATEMENT ANALYSIS
Ques. Name any two tools of financial statement analysis.
Ans.1. Common size statements
2Ratio analysis
3. Cash Flow Statement
CHAPTER 4
ACCOUNTING RATIOS
Ques.What is understood by accounting ratio?
Accounting ratio may be defined as a mathematical expression of the relationship between two items or groups of items shown in the financial statements.
Ques.What is considered to be the ideal Current ratio?
Ans.2:1
Ques.What is considered to be the ideal quick ratio?
Ans.1:1
Ques. Name profitability ratio based on investment.
Ans.Return on Investment(ROI)
Quesprepare a comparative statement of profit and loss with the help of the following information:
Particulars / Note no / 2012-13 / 2011-12Revenue from operations
expenses
other incomes
income tax / 30,00,000
21,00,000
3,60,000
50% / 20,00,000
12,00,000
4,00,000
50%
Ans. Comparative Statement of profit and loss
for the year ended 31 March 2012-13
Particulars / Note no / 2011-12 / 2012-13 / Absolute change / Percentage changeRevenue from operations
add: other income
Total Revenue(I+II)
less : exxpenses
profit before tax
less tax (50%)
profit after tax / 20,00,000
4,00,000
24,00,000
12,00,000
12,00,000
6,00,000
6,00,000 / 30,00,000
3,60,0000
33,60,000
21,00,000
12,60,000
6,30,000
6,30,000 / 10,00,000
(40,000)
9,60,000
9,00,000
60,000
30,000
30,000 / 50%
(10%)
40%
75%
5%
5%
5%
Ques.A business has current ratio 3:1 and a quick ratio1.2:1 if the working capital is rs 180000 calculate the total current assets and stock
ans- As current ratio = current assets /current liabilities=3/1
let current liabilities=x
Current assets=3x
Working capital= current assets-current liabilities
rs 180000= 3x-x
rs 180000=2x
x=180000/2=90000 (therefore current liabilities)
current assets = 3x=3X90000=217000
quick ratio= liquid assets/current liabilities=1.2/1
since current liabilities are =1x
so liquid assets= rs 1.2x
liquid assets= 1.2X90000=108000
stock= current assets-liquid assets-current
=270000-108000=162000
Ques.X ltd. Has a liquid ratio of 7:3. if its stock is 25000 and its current liabilities are 75000 find out the current ratio.
Ans. As liquid ratio= liquid assets/ current assets
7/3=liquid assets/75000
3Xliquid assets=75000 X7=525000
liquid assets = 525000/3=175000
current assets= liquid assets + stock
=175000+25000=200000
current ratio = current assets/ current liabilities
200000/75000= 2.67:1
Ques. Current liabilities are 560000 ;current ratio is 5:2 and quick ratio is 2:1. find out the value of stock.
Ans. 1) as current ratio= current assets/ current liabilities
5/2= current assets/560000
5X560000= 2Xcurrent assets
therefore current assets = 5X560000/2=1400000
2)as liquid ratio = liquid assets/ current liabilities
2/1= liquid assets/560000
therefore liquid assets =560000X2= 1120000
3) stock= current assets- liquid assets
=1400000-1120000
=280000
Ques.From the following information, calculate any two of the following ratios:
a) Debt to Equity Ratio b) Working Capital Turnover Ratio c) Return on investment
Information:
Equity Share Capital Rs 10,00,000; General Reserve Rs 1,00,000; Statement of Profit and loss( Profit afterTax and interest ) Rs 3,00,000; 12% Debentures Rs 4,00,000; Creditors Rs3,00,000; Land and building Rs14,00,000; Furniture Rs 3,00,000; Debtors Rs 2,90,000 Cash Rs 1,10,000 Revenue from Operation ( Net Sales) for the year ended 31st March, 2011 was Rs 3,00,000 and Tax Paid 50%
Answer: a) Debt to Equity Ratio = 0.29:1; b) Working Capital Turnover Ration = 30 Times;
c) ROI = 36%
Question: Current Assets of a company are Rs1,26,000 and the Current Ratio is 3:2 and the Inventories are Rs 2,000. Find Liquid Ratio
Ans: Current Liability = Rs 1,26000 X 2/3 = Rs 84,000
Liquid Ratio = Current Assets – Inventories
Current Liability
Liquid Ratio = Rs 1,26,000 – Rs 2,000 = Rs 1,24,000 = 1.47:1
Rs 84,000 Rs 84,000
Question: Ratio of Current Assets (Rs 3,00,000) to current liability ( Rs 2,00,000) is 1.5:1. The accountant of the firm is interested in maintaining a Current Ration of 2:1, by paying off a part of the current Liabilities. Compute amount of Current Liabilities that should be paid so that the current Ration at the level of 2:1 may be maintained.
Answer: Let the amount of Current Liabilities to be paid off be = x
then,
= Rs 3,00,000 - x = 2
Rs 2,00,000 – x 1
= Rs 3,00,000 – x = Rs 4,00,000 -2x :
X = Rs 1,00,000.
Question: Calculate amount of gross profit and sales from the following information:
Average Inventory = Rs 80,000
Inventory Turnover Ratio = 6 Times
Selling Price= 25% above the cost
Answer: Inventory Turnover Ratio = Cost of Revenue from Operation, i.e, Cost of Goods Sold
Average Inventory
6 = Cost of Revenue from Operation, i.e, Cost of Goods Sold
Rs 80,000
Cost of Revenue from Operation =Rs 80,000 X 6 =Rs 4,80,0000
Gross Profit = 25% of Rs 4,80,000 = Rs 1,20,000
Therefore, Revenue from operation = Cost of Revenue from Operation + Gross Profit
= Rs 4,80,000 + Rs 1,20,000 = Rs 6,00,000.
Question : Current Assest of a company are Rs 17,00,000 . Its Current ratio is 2.5 and liquid ratio is 0.95. Calculate Current Liability and Inventory.
Answer: Current Ratio = Current Assets .
Current Liabilities
2.5 = Rs17,00,000 .
Current Liabilities
Current Liabilities = Rs 6,80,000
Quick Ratio = QuickAssets .
Current Liabilities
0.95 = QuickAssets .
Rs 6,80,000
Quick Assets = Rs 6,46,000
Inventory = Current Assets – Quick Assets
= Rs 17,00,000 -Rs 6,46,000
= Rs 10,54,000
Current Liability = Rs 6,80,000
Inventory = Rs 10,54,000
Question: From the following calculate the ‘Gross Profit Ratio’ and ‘Working Capital Turnover Ratio’:
Revenue from operations = Rs 30,00,000
Cost of Revenue from operations = Rs 20,00,000
Current Assets = Rs 6,00,000
Current Liability = Rs 2,00,000
Paid up Capital = Rs 5,00,000
Answer :
Gross Profit Ratio = Gross Profit .
Revenue from Operation
= Rs 10,00,000 X 100 = 33 1/3 %
RS 3,00,000
Working Capital Turnover Ratio = Revenue from Operation = Rs 30,00,000
Working Capital Rs 4,00,000
= 7.5 Times
Question: From the given information , calculate inventory ( Stock) Turnover Ratio:
Revenue from the operation, i.e Net Sales Rs 4,00,000; Gross Profit : 25% on cost; opening Inventory (stock) was 1/3rd of the value of closing inventory ( Stock). Closing Inventory ( Stock) was 30% if sales.
Hint: Inventory (stock) Turnover Ration = 4 Times
Chapter 5
CASH FLOW STATEMENT
Ques.What is the objective of preparing cash flow statement?
Ans.To ascertain the cash flows of an enterprise during a specific period from its different activities(operating/investing/financing)
Ques.Define cash as per accounting standard-3.
Ans.Cash comprises of cash on hand and demand deposits with banks.
Ques. What is meant by cash Equivalents ?
Ans. Cash equivalents are short-term highly liquid investments that are readily convertable into
known amounts of cash and which are subjects to an insignificnt risk of change in value.
Ques. Give two example of cash equivalents ?
Ans. 1.Treasury bills
2. Marketable securities.
Ques. Purchase of patents would result in inflow outflow or no flow of cash. Give your answer with reasons.
Ans.Purchase of patents would result in outflow of cash because it decreases cash.
Ques. Under which type of activity will you classify sale of shares of another company while preparing cash flow statement.
Ans. investing activity.
Ques. Under which type of activity will your classify purchase of share by a trading company in another company while preparing cash flow statement.
Ans. Investing company.
Ques. Give one limitation of cash flow statement.
Ans.cash flow statement ignores the basic concept of accounting i.e. accrual concept.
Ques. How is purchase of goodwill shown in cash flow statement ?
Ans. It will be shown as outflow under cash flow from investing activity.
Ques. Give an example of activity which remains financing activity for every enterprises.
Ans. Dividend paid
Ques. When is interest received concidered as financing activity ?
Ans. Interest received on calls in – arrears by acompany is concidered as financing activity. ( H )
Ques.Dividend recevied by a finance company will come under which activity while preparing cashflowstatement ?
Ans-Operating activity.
Ques. Under which type of activity will you classify 'proceeds from sale of investment' While preparing cashflow statement.
Ans.Investing activity.
Ques.Redemption of debenture would result in inflow , outflow or inflow of cash .give your answer in reasion.
Ans.Redemption of debenture would result in outflow of cash because cash goes out.
Ques. Under which type of activity will you classify “proceed from sale of machinary” while preparing cash flow statement.
Ans. Investing activity
Ques. Under which type of activity will you classify “Refund of tax received”while preparing cash flow statement .
Ans. Operating activity.
Ques. Declaration of final dividend would result in inflow , outflow of no flow of cash . Give your answer in reason.
Ans no flow of cash in dividend in declared only , not yet paid.
Ques. Sale of marketable securities at par would result in inflow, outflow or no flow. Give reason.
Ans.No flow of cash as marketable securities are cash equivalent.
Ques.List any two financing activities that will result into outflow of cash.
Ans.1) Payment of dividend2) repayment of long term borrowing
Ques.List any two financing activities that will result into inflow of cash.
Ans.Proceed from issue of shares and proceed from issue of debentures,loanetc
Ques.Classify the following activities as operating ,investing and financing:
vii)Issue of shares
viii)Receipt of interest on investment by manufacturing company
ix)Sale of goods
x)Receipt of interest on investment by a bank
Ans. i) financing
ii) investing
iii) and iv) operating
Question : Following balance appeared in Plant Account and Accumulated Depreciation Account in the books of Bharat Ltd.:
Balance at / 31st March 2003 (Rs) / 31st March 2004 (Rs)Plant and Machinery
Accumulated Depreciation / 7,50,000
1,80,000 / 9,70,000
2,40,000
Additional information:
Plant costing Rs 1,45,000; Accumulated depreciation thereon Rs 70,000, was sold for Rs 35,000. You are required to :
i) Compute amount of plant purchased, depreciation charged for the year and loss on sale of plant.
ii) Show how each of the items related to the plant will be shown in Cash Flow Statement.
Particulars / Rs / Particulars / RsTo Balance b/d (1st April, 2003)
To Bank A/c (Bal. Fig.)
(Plant Purchased) / 7,50,000
3,65,000 / By Bank A/c (sales)
By Accumulated Depreciation A/c
By Loss on sale of Plant ( Statement of Profit and Loss)
By Balance c/d (31st March 2004) / 35,000
70,000
40,000
9,70,000
11,15,000 / 11,15,000
Answer: i)
PLANT ACCOUNT
ACCUMULATED DEPRECIATION ACCOUNT
Particulars / Rs / Particulars / RsTo Plant A/c ( Transfer)
To Balance c/d ( 31st March 2004) / 70,000
2,40,000 / By Balance b/d (1st April 2003)
By Depreciation A/c ( Statement of Profit and loss) (Bal. fig) / 1,80,000
1,30,000
3,10,000 / 3,10,000
ii) a) Sale of Plant of Rs 35,000 is an inflow of cash from investing Activities.
b) Purchase of Plant of Rs 3,65,000 is an outflow of cash from Investing Activities.
c) Loss on Sale of Plant ( Rs 1,45,000 – Rs 70,000 – Rs 35,000 = Rs 40,000) and depreciation charged will be added in Net Profit while computing Cash Flow from operating Activities.
Question: X Ltd. Made a profit of RS 1,00,000 after consideration the following items;
i) Depreciation on Fixed Assets Rs 20,000.
ii) Writing off Preliminary Expenses Rs 10,000.
iii) Loss on Sale of Furniture Rs 1,000
iv) Provision for Taxation RS 1,60,000
v) Transfer to General Reserve Rs 14,000.
vi) Profit on sale of Machinery Rs 6,000.
The following additional information is available to you:
Particular / 31st March,2007 (Rs) / 31st March,
2008 ( Rs)
Trade Receivables :
Debtors
Bills Receivable
Trade Payable
Creditors
Bills Payable
Prepaid Exenses / 24,000
20,000
20,000
16,000
400 / 30,000
17,000
30,000
12,000
600
Calculate Cash Flow operation Activities
Answer : Cash Flow from operating activities = Rs 1,41,800.