THAKUR COLLEGE OF SCIENCE & COMMERCE

Module 1
Financial Statement Analysis
Meaning of Financial Statements

Every business concern wants to know the various financial aspects for effective decision making.
The preparation of financial statement is required in order to achieve the objectives of the firm as a
whole.The term financial statement refers to an organized collection of data on the basis of accounting
principlesand conventions to disclose its financial information. Financial statements are broadly grouped
in to two statements:

I. Income Statements (Trading, Profit and Loss Account)

II. Balance Sheets

In addition to above financial statements supported by the following statements are prepared to meet
theneeds of the business concern:

(a) Statement of Retained Earnings

(b) Statement of Changes in Financial Position (cash flow

statement)The meaning and importance of the financial statements are

as follows :

(1) Income Statements: The term ‘Income Statements’ is also known as Trading, Profit and Loss
Account. This is the first stage of preparation of final accounts in accounting cycle. The purpose of
preparing Trading, Profit and Loss Accounts to ascertain the Net Profit or Net Loss of a business concern
during the accounting period.

(2) Balance Sheet: Balance Sheet may be defined as “a statement of financial position of any
economic unit disclosing as at a given moment of time its assets, at cost, depreciated cost, or other
indicated value, its liabilities and its ownership equities.” In other words, it is a statement which indicates
thefinancial position or soundness of a business concern at a specific period of time. Balance Sheet may
also bedescribed as a statement of source and application of funds because it represents the source where
the funds.

Statement of Changes in Financial Position: Income Statements and Balance sheet do not disclose the
operational efficiency of the concern. In order to measure the operational efficiency of the concern it is

Dept. of Accountancy, TCSC 1

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essential to identify the movement of working capital or cash inflow or cash outflow of the business concern
during the particular period. To highlight the changes of financial position of a particularfirm, the statement
is prepared may emphasize of the following aspects :

(c) Fund Flow Statement is prepared to know the changes in the firm’s working capital.

(d) Cash Flow Statement is prepared to understand the changes in the firm’s cash position.

(e) Statement of Changes in Financial Position is used for the changes in the firm’s
totalfinancial position.

• Nature of Financial statements

Financial Statements are prepared on the basis of business transactions recorded in the books of
Original Entry or Subsidiary Books, Ledger, and Trial Balance. Recording the transactions in the books
ofprimary entry supported by document proofs such as Vouchers, Invoice Note etc.

According to the American Institute of Certified Public Accountants, “Financial Statement reflects a
combination of recorded facts, accounting conventions and personal judgments and conventions
applied which affect them materially.” It is therefore, nature and accuracy of the data included in the
financial statements which are influenced by the following factors :

(1) Recorded Facts.

(2) Generally Accepted Accounting Principles.

(3) Personal Judgments.

(4) Accounting Conventions.

• Objectives of Financial Statements

The following are the important objectives of financial statements :

(1) To provide adequate information about the source of finance and obligations of the finance
To provide reliable information about the financial performance and financial soundness of
the concern.

(2) To provide sufficient information about results of operations of business over a period of time.

(3) To provide useful information about the financial conditions of the business and
movement ofresources in and out of business.

(4) To provide necessary information to enable the users to evaluate the earning

Dept. of Accountancy, TCSC 2

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performance ofresources or managerial performance in forecasting the earning potentialsof

business.

• Limitations of Financial Statements

(l) Financial Statements are normally prepared on the basis of accounting principles, conventions
and past experiences. Therefore, they do not communicate much about the profitability,
solvency, stability, liquidity etc. of the undertakers to the users of the statements.

(2) Financial Statements emphasis to disclose only monetary facts, i.e., quantitative information
andignore qualitative information.

(3) Financial Statements disclose only the historical information. It does not consider
changes inmoney value, fluctuations of price level etc. Thus, correct forecasting for future is
not possible.

(4) Influences of personal judgments leads to opportunities for manipulation while

preparing offinancial statements.

(5) Information disclosed by financial statements based on accounting concepts and conventions.
It isunrealistic due to difference in terms and conditions and changes in economic situations.

Users of financial statements

1) Company management. The management team needs to understand the profitability,

liquidity, and cash flows of the organization every month, so that it can make operational
and financing decisions about the business.

2) Competitors. Entities competing against a business will attempt to gain access to its
financial statements, in order to evaluate its financial condition. The knowledge they gain
could alter their competitive strategies.

3) Customers. When a customer is considering which supplier to select for a major contract,
it wants to review their financial statements first, in order to judge the financial ability of a
supplier to remain in business long enough to provide the goods or services mandated
in the contract.
4) Employees. A company may elect to provide its financial statements to employees, along
with a detailed explanation of what the documents contain. This can be used to increase
the level of employee involvement in and understanding of the business.

5) Governments. A government in whose jurisdiction a company is located will request

Dept. of Accountancy, TCSC 3

ACCOUNTING FOR MANAGERIAL DECISION

financial statements in order to determine whether the business paid the appropriate
amount of taxes.

6) Investment analysts. Outside analysts want to see financial statements in order to decide
whether they should recommend the company's securities to their clients.

7) Investors. Investors will likely require financial statements to be provided, since they are
the owners of the business and want to understand the performance of their investment.

8) Lenders. An entity loaning money to an organization will require financial statements in

order to estimate the ability of the borrower to pay back all loaned funds and related
interest charges.

9) Rating agencies. A credit rating agency will need to review the financial statements in
order to give a credit rating to the company as a whole or to its securities.

10) Suppliers. Suppliers will require financial statements in order to decide whether it is safe
to extend credit to a company.

11) Unions. A union needs the financial statements in order to evaluate the ability of a
business to pay compensation and benefits to the union members that it represents.

Analysis and Interpretations of Financial Statements

Presentation of financial statements is the important part of accounting process. To provide more
meaningful information to enable the owners, investors, creditors or users of financial statements to
evaluate the operational efficiency of the concern during the particular period. More useful information are
required from the financial statements to make the purposeful decisions about the profitability and
financial soundness of the concern. In order to fulfil the needs of the above, it is essential to consider
analysis and interpretation of financial statements.

Meaning of Analysis and Interpretations

The term “Analysis” refers to rearrangement of the data given in the financial statements. In other
words, simplification of data by methodical classification of the data given in the financial statements.
The term “interpretation” refers to “explaining the meaning and significance of the data so
simplified.”

Both analysis and interpretations are closely connected and inter related. They are complementary
to each other. Therefore presentation of information becomes more purposeful and meaningful—both

Dept. of Accountancy, TCSC 4

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analysis and interpretations are to be considered.

Metcalf and Tigard have defined financial statement analysis and interpretations as a process of
evaluating the relationship between component parts of a financial statement to obtain a better understanding
ofa firm’s position and performance.

The facts and figures in the financial statements can be transformed into meaningful and useful
figures through a process called “Analysis and Interpretations.”

In other words, financial statement analysis and interpretation refer to the process of establishing
the meaningful relationship between the items of the two financial statements with the objective of
identifyingthe financial and operational strengths and weaknesses.

Techniques of Management Accounting (tools of analysis)

• Vertical form statement
• Comparative financial statement
• Trend percentage
• Common size statement
• Ratio analysis
• Cash flow analysis

1. Vertical form statement

• Vertical analytical balance sheet
• Profit and loss statement(in excel sheet)
2. Comparative financial statement

Under this form of comparative financial statements both the comparative Profit and Loss
Accountand comparative Balance sheet are covered. Such comparative statements are prepared not
only to the comparison of the various figures of two or more periods but also the relationship between
various elements embodied in profit and loss account and balance sheet. It enables to measure
operational efficiency and financial soundness of the concern for analysis and interpretations. The
followinginformation may be shown in the comparative statements:

(a) Figures are presented in the comparative statements side by side for two or more years.

(b) Absolute data in money value.

Dept. of Accountancy, TCSC 5

ACCOUNTING FOR MANAGERIAL DECISION

(c) Increase or Decrease between the absolute figures in money value.

(d) Changes or trend in various figures in terms of percentage.

3. Trend percentage

Trend Analysis is one of the important technique which is used for analysis and interpretations
of financial statements. While applying this method, it is necessary to select a period for a number
of years in order to ascertain the percentage relationship of various items in the financial
statements comparing with the items in base year. When a trend is to be determined by applying
this method, earliest year or first year is taken as the base year. The related items in the base year
are taken as 100 and based on this trend percentage of corresponding figures of financial
statements in the other years are concluded. This analysis is useful in framing suitable policies
and forecasting in future also.

Trend percentage = amount of year under study X 100

amount of base year

4. Common size statement

A common size statement shows the relation of each component to the whole. It is useful in case
ofa vertical financial analysis and comparison of two business enterprise at a certain date.

Dept. of Accountancy, TCSC 6

ACCOUNTING FOR MANAGERIAL DECISION

Common Size Financial

Statements

Common Size Income

Common Size Balance Sheet
Statement

In This Case
In This Case
“Total Funds Employed=totalNet
“Net Sales=100%” Sales=100%”

Dept. of Accountancy, TCSC 7

ACCOUNTING FOR MANAGERIAL DECISION

Vertical Analytical Income Statement

NO. PARTICULARS Rs Rs
1 Gross Sales & Services XX
less: returns & allowances (x)
Net Sales (A) XX
2 Less: Cost of Goods sold
a. Opening stock XX
b. Purchase XX
c. Direct/ manufacturing/ factory expenses XX
d. depreciation on Machinery, Factory, Building XX
Less: Closing stock (X)
Sale of scrap (X)

Cost Of Goods Sold (COGS) (a+b+c+d) (B) XX

Gross profit
3 (A-B) XX
4 Less: Operating Expenses
a. Administation Expenses XX
b. Selling and Distribution Expenses XX
C. Finance expenses XX
Total operating Expenses (except intrest) (a+b+c) XX
5 Operating Profit before interest XX
Less: interest (X)
6 Net Profit after intrest XX
7 Net non operating income
a. Non operating Income XX
b. Less: Non operating Expenses (X)
Net non operating income (a-b) XX
8 Net Profit before Tax (6+7) XX
9 Less: Income Tax (X)
10 Net Profit After Tax (8-9) XX
11 Add: P&l Account (Balance b/d) XX
12 Less: Appropriation (x)
13 Retained Earnings XX

Dept. of Accountancy, TCSC 8

ACCOUNTING FOR MANAGERIAL DECISION

Vertical Analytical Balance Sheet Format

I. SOURCES OF FUNDS Rs. Rs
1OWNER'S FUND
A. Capital XX
B. Reserves and surplus XX
less: Losses and fictitious assets (X) XX
Own funds or net worth XX
2 Loan Funds
A. Secured/ long term loans XX
B. Unsecured loans XX XX
Owed funds or Loan funds
Total funds available or Capital Employed (CE) XX
(Own Funds + Loan Funds)

II. APPLICATION OF FUNDS

1 Fixed Assets (FA)
A. Tangible XX
B. Intangible XX XX
2 Long term or Trade Investments XX
3 Working Capital (WC)
A. Current assets XX
less: Current liability (X) XX
Total funds Used or Capital Employed XX
Fixed assets + Investments + Working Capital)

Dept. of Accountancy, TCSC 9

ACCOUNTING FOR MANAGERIAL DECISION
(B) Selling & Distribution Expenses
a. Salaries to salesman
Vertical income statement (detailed) b. Rent of shop, showroom
1. Gross Sales & Services c. Depreciation on Delivery vans
d. Exhibition Trade Fair
(revenue from operation)
e. Advertisement or Publicity
a. Cash
f. Travelling/ van Expenses
b. Credit g. Sale Discount/ Commission
h. Normal Bad Debts
2. Returns & Allowances Selling & Distribution Expenses(total)
3. Net sales
4. Less: Cost of Goods Sold (c)Finance Charges
a) Opening stock (RM) i. Cash Discount
b) Purchases (RM) j. Bank Charoon / Commision
c) freight, octroi, Duty k. Abnormal Bad debts
d) Less: Closing stock(RM) Finance Charges(total)
Raw Material Consumed Total Operating Expenses (Except Interest)
e) Direct Expenses
7. Operating Profit before Interest
i. Factory Power
8 Less: Interest Paid
ii.Wages
a. Interest on Debentures or Bonds
iii. Other Manufacturing Expenses b. Interest on Loans
f) Depreciation c. interest on Public Deposits
i) on Machinery d. Interest on Short Term Loans
ii) on Factory Building Interest Paid
iii)on Patterns/Patents 9. Net Profit after Interest
g) Opening Stock :WIP 10. Net Non-operating Income
h) Less: Closing Stock WIP a. Non-operating Income
i) Less: Sale of Scrap i. Dividends on Shares
j) Opening Stock (FG) ii. Interest on Debentures. Loans etc. Of
iii. Profit on Sale of Fixed Assets/investment
k) Purchases (FG)
iv. Damages received
l). Less: Closing stock (FG)
v. Royalty
Cost of Goods Sold
vi. Shares Transfer Fees
5. Gross Profit Non-operating Income
6. Less : Operating Expenses b. Less: Non-operating Expenses
(A) Administration Expenses i. Loss on Sale of Fixed Assets Investment
a. Office Salaries ii. Damages paid /due
b. Office Rent Rates and Taxes iii. Fine or Penalty
c. Insurance iv. Fictitious Assets w/o
d. Electricity for Office Non-operating Expenses
e. Printing & Stationery Net Non-Operating Income
f. Depreciation on Office Assets 11. Net Profit before Tax (NPBT)
12. Less : Income Tax
g. Postage and Telephone
13. Net Profit after Tax (NPAT)
h. Directors fees
14. Add : Profit & Loss Balance b/d
i. Legal Expenses
Profit Available for Appropriations
j. Audit Fees 15. Less: Appropriations
k. Repairs (a) Sinking Fund / Reserves
l. Other (b) Dividends Paid
Administration Expenses (total) Appropriations
16. Retained Profits

Dept. of Accountancy, TCSC 10

ACCOUNTING FOR MANAGERIAL DECISION
II. APPLICATION of Funds
Vertical Balance Sheet (Detailed Items) 1. Net Fixed / Non-Current Assets
I. SOURCES OF FUNDS A. Tangible
i. Land and building
1. Owner's Funds
ii. Leaseholds
A. Capital iii. Plant and Machinery
(i) Equity Share Capital / Capital of Proprietor or Partner iv. Furniture and Fittings
(ii) Preference Share Capital Amount Subscribed / Called-up v. Vehicle (For each item
Less : Unpaid Calls Drawings of Proprietor or Partner a) Cost
Add : Forfeited Shares / Fresh Capital by Prop. / Partner b) Less: Depreciation
Add: Received Against Share Warrants c) Net Tangible Assets (a - b)
B. Intangible
i. Goodwill
B. Reserves and Surplus ii. Patents, copyrights trademarks and designs
(i) Capital Reserve Total Fixed Assets ( A+ B)
(ii) Capital Redemption Reserve (Net Tangible Assets+ Intangible Assets)
(iii) Share Premium 2. Long Term/ Non-current Investments
(iv) General Reserve i. Investment in Government Securities Shares, Debentures etc
(V) Other Reserve Less: Sinking Fund/ Other Funds /Investment
ii. Investments in immovable properties
(vi) Profit & Loss A/c - Cr. balance
iii. Investments in Capital of Partnership Firm
(vii) Sinking Fund Other Funds iv. Long Term Loans given
Less :Fund Investment
3. Working Capital
C.Less: Losses & Fictitious Assets Quick Assets
(i) Profit & LOSS AC - dr balance a. Cash and Bank
(ii)Misc Expenditure not we off b. Debtors/Trade Receivables
(1) Preliminary Expenses c. Bills Receivable
d. Short Term Loans & Advances Given
2. share issue exp
e. Accrued Income
(3) Discount on issue of shares or debentures f. Short term or Marketable investments
(4) Deferred Revenue Expenditure Total Quick or Liquid Assets (a to f)
Net Reserves Surplus (b-c) g. Inventory
Own Funds or Net Worth (1) h. Prepayment (prepaid expenses advance for goods, advance tax )
( Capital+ Reserves & Surplus - Losses & Fictitious Assets) A .Current Assets (a to h)
Less: Quick Liabilities
a. Creditors / Trade Payables
2 Loan Funds
b. Bills Payable
A. Secured Loans / Long Term Borrowings c. Advances Received
(i)Debentures bonds d. Outstanding Expenses
(ii) Loan from Banks e. Accrued Interest
(iii)Loans from Financial Institutions f. Provision for Tax
g. Unclaimed Dividend
B. Unsecured Loans h. Short Term Loans
Total Quick Liabilities (a to h)
Public Deposits
i. Bank Overdraft
Owed Funds (a+ b)
B. Current Liabilities (a to i)
(Secured Loans + Unsecured loans) Net Current Assets or Working Capital (A-B)
Total funds Available/ Capital Employed Total Assets or Total Funds Employed
(Own Funds + Owed Funds) (1+2) (Fixed Assets + Investments + Working Capital) (1+2 + 3)

Dept. of Accountancy, TCSC 11

 ✓ Equations Related To Balance Sheet

1. Own funds + Loan Funds = Fixed assets + Investments + Working

Capital(OF + LF = FA + Inv + WC)
2. Total assets =FA+ Inv + CA= TL( total liability)= OF + LF + CL
3. Capital employed = FA + WC = OF+LF
4. Owner’s Fund = TA – CL – LF
5. Owner’s Fund = Capital + Reserves & Surplus – Losses & Fictitious Assets
6. Total owned Funds= Secured Loan + Unsecured Loan
7. Total Funds Available= Own Funds + Owed Funds
8. Fixed Assets = Tangible Assets + Intangible Assets
9. Quick Assets = current Assets – Inventories – Pre-payments
10. Quick Liability = Current Liabilities – Bank Overdraft

Equations Related To Profit And Loss Statement

1. Net sales = Gross sales – Returns and Allowances

2. Cost of Goods = Opening stock + Purchase + Direct Expenses + Depreciation – Closing Stock
3. Gross Profit = Net sales – Cost of Goods Sold
4. Operating Expenses = Administration Expenses + Selling Expenses + Finance Charges
5. Net Non operating Income = Non operating income – Non Operating Expenses
6. Net Profit After Tax (NPAT) = Net Profit Before Tax – Income Tax

Dept. of Accountancy, TCSC 12

 Questions: Balance Sheet Questions

Q1. Following is the Balance sheet of Kalpesh Ltd.

Liabilities Amount Assets Amount

Equity Shares Capital 3,90,000 Cash in hand 15,000
10% Preference Share Capital 2,00,000 Cash at bank 90,000
9% Debentures 2,50,000 Preliminary Expenses 20,000
General Reserves 60,000 Goodwill 1,00,000
Capital reserves 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 of Tax 1,40,000 Debtors 1,50,000
OS EXPENSESS 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

Present the above in vertical form and show the following:

1. Net worth
2. Capital Employed
3. Working Capital
4. Borrowed Fund
5. Net Block
6. Fictitious Assets

Q2. The Following items appears in the Financial Statements of M Ltd. As on 31st December 2021.

Particulars Amount Particulars Amount

Cash 45,000 Land and Building 8,00,000
Bills receivable 60,000 Stock 2,75,000
Creditors 4,00,000 Prepaid Expenses 60,000
General reserves 1,00,000 Debtors 5,00,000
Plant and machinery 5,50,000 Debentures 3,00,000
Bank overdraft 50,000 Equity Share Capital 10,00,000
Profit and loss A/c ( credit ) 2,25,000 Proposed Dividend 90,000
Long Term Investment 20,000 Advance Tax 1,00,000
Provision for Tax 2,00,000 Bills Payable 45,000
Preliminary expenses not yet w/o 25,000 Unclaimed Dividend 25,000
You are required to arrange the above items in the form of a vertical Balance Sheet and determine (a)
Current Assets (b) Fixed Assets (c) Current Liabilities (d) Proprietary Fund (e) Quick Assets (f) Quick
Liabilities

Dept. of Accountancy, TCSC 13

Q3. From the following information of PARI LTD. prepare a vertical balance sheet for analysis.
Particulars Rs
current account with Bank of India 50,000
Land and building 8,00,000
Advance payment 62,000
Stock 2,73,000
Creditors 4,06,000
Debtors 5,23,000
Bills receivables 21,000
Plant and Machinery 5,44,000
12% Debentures 2,50,000
Loan from Director 52,000
Equity Share capital 10,00,000
Profit and loss account 2,17,000
Trade Investment 20,000
Proposed Dividend 86,000
Advance Taxes 1,00,000
Provision for Tax 2,64,000
Bills Payable 18,000
General Reserve 1,00,000

Q4. The balance sheet of XYZ LTD. is given for the year 2014. Convert them into vertical Balance Sheet.

Liabilities Rs Assets Rs
Equity Share Capital 1,91,000 Building 2,00,000
Capital Reserve 70,000 Plant and Machinery 55,000
Revenue Reserve and surplus 30,000 Furniture 20,000
Trade Creditors 40,000 Freehold Property 12,000
Bills Payable 60,000 Goodwill 30,000
Bank Overdraft 80,000 Cash Balance 20,000
Provision 20,000 Sundry Debtors 35,000
Inventories 57,000
Investments (Temporary) 42,000
Bills Receivable 20,000
Total 4,91,000 Total 4,91,000

Dept. of Accountancy, TCSC 14

Q5. The following is the Balance sheet of ABC Limited as on 31st March 2014 you are required to present
in
Vertical form.

Liabilities Rs Assets Rs
Equity share Capital 3,00,000 Goodwill 80,000
Reserves and Surplus 1,50,000 Land and Building 1,50,000
10% Mortgage Debentures 2,15,000 Plant and Machinery 2,00,000
Sundry Creditors 1,30,000 Patent Rights 21,500
Bank Overdraft 40,000 Stock in Trade 1,43,500
Provision for Tax 35,000 Sundry Debtors 2,40,000
Cash in Hand 5,000
Cash at Bank 10,000
Preliminary Expenses 20,000

Total 8,70,000 Total 8,70,000

Revenue Statement Questions

Q6. Profit and Loss account for the year ended 31-3-2019.
Particulars Rs Particulars Rs
To opening Stock 76,250 By Sales 6,02,350
To purchase 3,15,250 less: Returns 10,000 5,92,350
To freight and Carriage 7,000 By closing stock 98,500
To staff Salaries 20,000 By interest on Bonds 1,500
To Sales salaries 15,300 By Dividend On shares 3,750
To interest on debentures 1,200 By profit on sale of share 3,900
To rent 2,700
To Printing and Stationary 2,500
To Advertising 4,700
To sales Discount 2,400
To depreciation 9,300
To Insurance 1,000
To electricity 350
To salesmen's Travelling Expenses 2,000
To Bad debts 3,400
To Telephone Expenses 750
To Legal Charges 6,400
To Directors Fees 48,000
To Loss on sales of Bonds 3,500
To provision for Claim for Damages 1,650
To Net Profit 1,76,350
Total 7,00,000 total 7,00,000

Present the above in Vertical Form suitable for analysis.

Dept. of Accountancy, TCSC 15

Q7. The accountant of a company submits the following financial statements for March 2019.

Particulars Rs Particulars Rs
To Opening stock 35,000 By Sales 8,30,000
To Purchase 7,50,000 By Closing Stock 80,000
To Gross Profit 1,25,000
9,10,000 9,10,000
To depreciation 47,000 By Gross Profit
To Other Expenses 18,000 By Interest 1,25,000
To Tax provision 37,000 5,000
To Proposed Dividend 20,000
To Net Profit 8,000
Total 1,30,000 Total 1,30,000

Q8.Following is the Profit and Loss Account of Well balanced Limited for the year ended 31st March 2003.
You are required to prepare Vertical Income Statement for purpose of analysis.
Particulars Amount Particulars Amount
To opening stock 7,00,000 By sales
To purchase 9,00,000 Cash 5,20,000
To wages 1,50,000 Credit 15,00,000
To factory expenses 3,50,000 20,20,000
To office salaries 25,000 Less : returns 20,000 20,00,000
To office rent 39,000 By closing stock 6,00,000
To postage and telegram 5,000 By dividend on investment 10,000
To director 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

Dept. of Accountancy, TCSC 16

Q9. The following figures relate to the trading activities of Z ltd for the year ended 31st March 2003

Particulars Amount
Sales 10,57,000
Closing stock 4,60,000
Purchases 8,35,000
Loss on sale of assets 45,000
Advertising 32,700
Rent 18,750
Profit on sale of shares 25,000
Provision for taxation 1,00,000
Salaries 35,750
Salesman’s salaries 14,250
Depreciation 36,000
Sales return 57,000
Depreciation on delivery van 8,000
Printing and stationery 17,500
Audit fees 12,000
Opening stock 2,25,000
Dividend received on shares 15,000
You are required to rearrange above income statement in vertical form.

Dept. of Accountancy, TCSC 17

 Combined Questions

Q10. The account of synthetic industries limited submits the following statements for 2016-17.

Trading and profit and loss account for the year ended 31-3-2017
Particulars Rs Particulars Rs
To Opening Stock 25,000 By Sales 6,25,000
To Purchase 5,00,000 By Closing Stock 25,000
To Gross Profit C/D 1,25,000
6,50,000 6,50,000
To Depreciation On Assets Let Out 50,000 By Gross Profit B/D 1,25,000

To Other Expenses 30,000 By Returns From Assets Let Out

80,000
To Tax 40,000
To Net Profit 85,000

Total 2,05,000 Total 2,05,000

Balance sheet as on 31-3-2017

Liabilities Rs Assets Rs

Share Capital 2,74,000 Cash 5,000

Sundry Creditor 80,000 Debtors 100,000

Bank Overdraft 25,000 Stock 25,000

Tax Provision 40,000 Let Out Assets Cost 4,00,000

Less: Tax Paid (39,000) 1,000 Less: Depreciation (1,50,000) 250,000

Total 380,000 Total 380,000

Rearrange the above in a form suitable for you.

Dept. of Accountancy, TCSC 18

Q11. From the following Trial Balance of Jyoti Ltd as on 31st March 2004 prepare vertical Revenue
statement for the year ended 31st March 2004 and Vertical Balance Sheet as on that date after makingthe
necessary adjustments

Particulars Rs Rs
Equity shares capital 11,00,000
Plant and 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
Salaries 1,80,000
Advertisement 75,000
Telephone charges 35,000
Furniture 2,00,000
Investment ( Long Term ) 5,00,000
Interest received 40,000
Loss on sale of furniture 20,000
Commission 60,000
Profit / loss 1,20,000
Interim dividend 50,000
General reserves 1,00,000
Cash at bank 3,20,000
Bills receivable 2,00,000

59,10,000 59,10,000

Adjustments
1. 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 and Machinery @ 20% and Furniture @ 10%

Dept. of Accountancy, TCSC 19

 Common Size Questions

Q12. Following is balance sheet of M/S Surendra Ltd. as on 31st March 2017.

Balance sheet as on 31st March 2017

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
Creditors 1,00,000 Stock 35,000
Bills Payable 50,000 Debtors 50,000
Cash 40,000
Bills Receivables 30,000
Preliminary Expenses 5,000
Total 9,00,000 Total 9,00,000

Prepare a Common size Vertical Statement.

Q13. From the following Income statement of M/S Anant Traders Prepare a common size revenue
Statement in a form suitable for analysis.

Profit and Loss Account for the year ended 31st March 2017

Particulars Rs Particulars Rs
To Administrative Expenses 5,00,000 By Gross Profit 16,00,000
To Selling Expenses 2,00,000 By Other Income 30,000
To Interest 90,000
To Income Tax 2,60,000
To Net Profit C/D 5,80,000
Total 16,30,000 Total 16,30,000

Cash sales-Rs 12,00,000, credit sales- Rs 48,30,000, Sales return- Rs 30,000. Treat interest as Operating
Expenditure.

Dept. of Accountancy, TCSC 20

Q14. From the following information prepare common size income statement and common size Balance
sheet.
Balance Sheet as on 31-3-2019
Liability Rs Assets Rs
Equity Share Capital 1,25,000 Land and Building 2,50,000
10% Preference Share Capital 50,000 Machinery 4,00,000
General Reserve 2,50,000 Furniture and Fixture 1,25,000
Profit and Loss Account 25,000 Stock 40,000
14% Debentures 5,00,000 Debtors 2,00,000
Sundry Creditors 1,50,000 Cash on Hand 15,000
Bank Overdraft 75,000 Preliminary Expenses 79,500
Outstanding Expenses 20,000 Bank Balance 35,500
Bills Receivables 50,000
Total 11,95,000 Total 11,95,000

Profit and Loss Account for the year ended 31-3-2019

Particulars Rs Particulars Rs
To opening stock 35,000 By sales 21,00,000
To purchase 8,25,000 By Closing stock 40,000
To wages 4,25,000
To custom Duty 1,70,000
To factory Expenses 2,00,000
To Administrative Expenses 1,80,000
To selling expenses 1,05,000
To finance expenses 25,000
To loss on sale of plant 75,000
To net profit 1,00,000
Total 21,40,000 Total 21,40,000

Comparative Questions
Q15. From the following Financial Statements of Vaibhav Ltd. prepare Comparative Financial statements.

Balance sheet as on 31st March

Liabilities ₹(2013) ₹(2014) Assets ₹(2013) ₹(2014)
Equity share capital 4,00,000 4,00,000 Land 2,00,000 2,40,000
12% preference Share Capital 3,00,000 3,00,000 Factory Plant and Building 6,00,000 5,40,000
General Reserve 2,00,000 2,45,000 Stocks 2,00,000 3,00,000
Tax payable 1,00,000 1,50,000 Debtors 2,00,000 3,00,000
Creditors 2,00,000 2,75,000 Cash 1,00,000 1,40,000
17% Debentures 1,00,000 1,50,000
Total 13,00,000 15,20,000 Total 13,00,000 15,20,000

Dept. of Accountancy, TCSC 21

 Profit and Loss account for the year ended 31st March

Particulars ₹(2013) ₹(2014) ₹(2013) ₹(2014)

To cost of Goods Sold 6,00,000 7,00,000 By sales 8,00,000 10,00,000

To Administrative Expenses 30,000 40,000
To selling Expenses 20,000 20,000
To Net Profit 1,50,000 1,90,000

Total 8,00,000 10,00,000 total 8,00,000 10,00,000

Q16. You are furnished with the following revenue statements for the year ended March 31st 2017.

Particulars 2014 2015 2016 2017

Sales 50,00,000 60,00,000 72,00,000 86,40,000
Less: Cost Of Ales 32,00,000 38,00,000 46,00,000 56,00,000
Gross Margin 18,00,000 22,00,000 26,00,000 30,40,000
Management Expense 3,00,000 3,50,000 4,00,000 4,50,000
Sales Expense 5,00,000 6,00,000 7,20,000 8,64,000
Interest On Borrowing 3,00,000 4,00,000 5,00,000 6,00,000
Total Expenses 11,00,000 13,50,000 16,20,000 19,14,000
Net Profit Before Depreciation And Taxation 7,00,000 8,50,000 9,80,000 11,26,000
Depreciation 5,00,000 4,50,000 6,00,000 6,50,000
Profit Before Taxation 2,00,000 4,00,000 3,80,000 4,76,000
Income Tax 80,000 2,00,000 1,85,000 2,40,000
Profit After Tax 1,20,000 2,00,000 1,95,000 2,36,000
You are asked to prepare Trend Analysis

Q17. Pass and Fail are Partners of a firm carrying on Business.

i. Their Position a on 31 st March 2012 , 2013 and 2014 are as follows-
Liabilities 2014 2013 2012 Assets 2014 2013 2012
Partner Capital 4,00,000 3,40,000 3,00,000 Fixed Assets 4,00,000 3,60,000 2,80,000
General Reserve 1,00,000 1,00,000 1,00,000 Current Assets
Secured Loan 60,000 60,000 50,000 Stock 1,60,000 1,50,000 1,35,000
Unsecured Loan 1,60,000 1,80,000 1,40,000 Debtor 2,00,000 1,60,000 1,40,000
Sundry Creditors 1,60,000 90,000 45,000 Loans and Advances 1,00,000 80,000 60,000
Bank Balance 20,000 20,000 20,000
Total 8,80,000 7,70,000 6,35,000 Total 8,80,000 7,70,000 6,35,000

ii. Summarised Income Statement for the year ended:

Particulars 2014 2013 2012
Income
Sales 40,00,000 36,00,000 30,00,000
Less: Cost of Sales 28,00,000 24,00,000 20,00,000
Gross Profit 12,00,000 12,00,000 10,00,000
Less: Expenses 8,00,000 8,00,000 7,00,000
Net Profit 4,00,000 4,00,000 3,00,000

Dept. of Accountancy, TCSC 22