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BASICS OF ACCOUNTING QUESTION BANK
ACCOUNTING EQUATION:
1.Show the accounting equation on the basis of the following
(i) Ram started business with Rs. 25,000(ii) Purchased goods on credit from Shyam Rs. 10,000(iii) Sold goods to Sohan costing Rs. 1500 for Rs. 1,800 on credit.
2. Prepare accounting equation on the basis of the following:
(i) Rahim started business with cash Rs. 20,000(ii) Rahim purchased furniture for cash Rs. 2,000(iii) Rahim paid rent Rs. 200(iv) Rahim purchased goods on credit Rs. 3,000(v) Rahim sold goods (cost price Rs.2, 000) for Rs. 3,000 on cash.
3. Show the accounting equation on the basis of the following transactions:
(i) Raj Started business with cash Rs.25, 000(ii) He purchased goods on credit Rs. 7,000(iii) He sold goods for cash, costing Rs.2, 800.(iv) Purchased furniture for cash Rs.2, 500(v) Sold goods to Rajesh on credit costing Rs.300 Rs.600(vi) Paid salaries Rs.350(vii) Received cash from Rajesh Rs.500(viii) Withdrew cash for private use Rs.2, 200(ix) Received rent from tenants Rs.2,500(x) Purchased goods from Murali for cash Rs.1, 500.
4. Show the Accounting Equation for the following transactions of Ritesh for the year 2012.
(i) Started business with cash Rs.18, 000(ii) Paid rent in advance Rs.400(iii) Purchased goods for cash Rs.5, 000 and on credit Rs.2, 000(iv) Sold goods for cash Rs.4, 000(costing Rs.2, 400)(v) Rent paid Rs.1, 000 and rent outstanding Rs.200(vi) Bought motor-cycle for personal use Rs.8, 000(vii) Purchased equipments for cash Rs.500(viii) Paid to creditors Rs.600(ix) Depreciation on equipment Rs.25(x) Business Expenses Rs.400.
JOURNAL, LEDGER, TRIAL BALANCE:
5. Journalize the following transactions post them into ledger and prepare trial balance.
2012 june 1 Started business with Rs.50, 000, paid into bank Rs.20, 0002 Bought furniture for Rs.5, 000 and machinery for Rs.1, 0003 Purchased goods for Rs. 14,0006 Sold goods for Rs.8, 0008 Purchased goods from Malhotra and Company Rs. 11,000
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10 Paid mobile bill for the month by cheque Rs.50011 Bought one computer for Rs.25, 000 from universal computers on credit15 Sold goods to Keshav Ram for Rs.12, 00017 Sold goods to Rajesh kumar for Rs.2, 000 for cash19 Amount withdrawan from bank for personal use Rs.1, 50020 Withdrew from bank for business use Rs.3, 50021 Received cash from Keshav Ram Rs.11, 900, discount allowed Rs.10022 Paid into bank Rs.5, 80023 Bought 50 shares in XY and Company limited at Rs.60 per share, brokerage Rs.2025 Goods worth Rs.1, 000 found defective were returned to Malhotra and Company and the balance of the amount due to them was settled by issuing a cheque in their favour.28 Sold 20 shares of XY and Company limited at Rs. 65 per share, brokerage paid Rs.2028 Bought goods worth Rs.2, 100 from Ramesh and supplied them to Suresh for Rs.3, 000.30. Suresh returned goods worth Rs.100, which in turn were sent to Ramesh30 Issued a cheque for Rs.1, 000 in favor of the landlord for rent for September.30 Paid salaries to staff Rs.1, 500 and received from travelling salesman Rs.2, 000 for goods sold by him, after deducting his travelling expenses Rs.10030 Paid for: Charity Rs.101; Stationery Rs.450; Postage Rs.249.
6. Record the following transactions in the Personal Account of Mr. Raman.
2011 September 1 Sold goods to Raman Rs. 5,4204 Received from Raman cash Rs. 5,150 and allowed him discount Rs.27015 Raman bought goods Rs.6, 00028 Received cash from Raman on account Rs.2, 0002011 October 1 Balance from last month brought forward Rs.2, 00013 Sold goods to Raman Rs.10, 00020 Received from Raman cash Rs.3, 960 and allowed him discount Rs. 4031 Received cash in full settlement of Raman’s account Rs.9, 800.
7. Classify the following items (expense/loss, income/gain, asset, liability
Prepaid Expenses Outstanding ExpensesAdvance Income Outstanding IncomeBad-debts Provision for bad-debtsGeneral Reserve Discounts AllowedRaw Materials consumed Raw material in stockShares of other companies Capital Work-in-ProgressPatents & Trademarks Reduction in value of investmentsProfit on sale of assets Loss on sale of investmentsProposed Dividend Dividends PaidDividends Received Provision for taxesAdvance Tax paid Dividend Tax R&D expenses Administrative charges Depreciation Cost of goods sold Interest on loan Accrued Dividends on investments Accrued Packing material Retained EarningsBills Payable Bills Receivable
Insurance premium paid Repairs & Maintenance charges
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8. An analysis of some transactions is given below. Explain the transactions.
Owner’s Equity 50,000 = Cash 20,000 + Bank 30,000 Equipment 7,000 - Cash 5,000 = Accounts Payable 2,000 Purchases 40,000 - Bank 25,000 = Bills Payable 15,000 Sales 50,000 = Cash 30,000 + Bills Receivable 20,000 Accounts Payable 2,000 - Cash 1,800 = Discounts Received 200 Cash 9,500 + Discounts Allowed 500 = Bills Receivable 10,000 Stationery 500 + Postage 455 = Cash 955 Bills Receivable 10,000 - Discounting Charges 300 = Bank 9,700
9. Summary of Ashok’s transactions for the month of June 2008 of his business are
Invested Rs. 1,00,000/- in business Purchased Furniture for Rs. 50,000/- Took loan from father Rs. 25,000/- Purchased goods for Rs. 60,000/- Paid for transport of goods Rs. 2,000/- Paid for installation of telephone Rs. 5,000/- Sold goods for cash Rs. 30,000/- Repaid loan to father Rs. 15,000/- Sold goods for credit Rs. 25,000/- Used goods of Rs. 5,000/- for personal use Received Rs. 20,000/- from credit salesIdentify the two effects of these transactions. Draw the financial statements.
10. QED Electronics is in the business of television and stereo repairs. Transactions for April are
A new repair truck was purchased for Rs. 19,000/- Parts costing Rs. 1,600/- were received and used during April Service charges for the month were Rs. 33,400/- but only Rs. 20,500/- was cash sales. Usually only 95%
of credit sales are realized Interest outstanding on loans was Rs. 880/- Wages for the month were Rs. 10,000/- but of this Rs. 1,400/- was yet to be paid to employees Parts inventory from beginning of the month was reduced by Rs. 2,100/- Utility charges Rs. 1,500/- were paid. Of this Rs. 700/- pertained to March. Depreciation was Rs. 2,700/- Selling expenses were Rs. 1,900/- Taxes were estimated at Rs. 2,800/- Of this Rs. 2,600/- were paid. Administrative expenses amounted to Rs. 4,700/-
Prepare financial statements for April.
11. Asha has recently started her business. She seeks your assistance in preparing financial statements.
Invested cash in business Rs. 50,000.00 Took loan from bank Rs. 1,50,000.00 Paid deposit to landlord for shops Rs. 25,000.00 Purchased goods in cash Rs. 30,000.00 Purchased good on credit from M/s Super Traders Rs. 75,000.00 Purchased furniture for shop Rs. 20,000.00 Paid carriage in cash Rs. 2,000.00 Paid wages in cheque Rs. 5,000.00 Sold goods in cash Rs. 45,000.00 Sold goods on credit to General Stores Rs. 55,000.00 Paid rent to landlord Rs. 3,500.00 Part of goods returned back by General Stores Rs. 5,000.00 Received cash from General Stores Rs. 49,500.00 Deposited cash in bank Rs. 75,000.00 Paid interest on bank loan Rs. 4,000.00 Re-paid part of bank loan Rs. 30,000.00
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Paid M/s Super Traders for goods Rs. 60,000.00 Withdrew cash from bank Rs. 15,000.00 Paid cash for personal expenses Rs. 5,000.00 Paid advance to M/s Mehta & Sons for supplies Rs. 50,000.00 Received supplies from M/s Mehta & Sons Rs. 1,00,000.00 Defective supplies returned back to M/s Mehta & Sons Rs. 10,000.00 Paid for electricity bill in cash Rs. 750.00 Telephone bill deducted from bank account Rs. 975.00
BALANCE SHEET and INCOME STATEMENT:
12. Mark whether the following statements are “true” or “False” by making T or F opposite each statement.
1. An increase in an asset always results in an increase in the owner(s) equity.
2. Assets=Liabilities+Owners Equity is always true.
3. Outsiders claims against the business is a residual claim.
4. An increase in the assets could be equated by an increase in the liabilities
5. Losses result in an increase in the owner(s) equity
6. All assets in the balance sheet are valued at their reliazable value
7. If Mr. X was going to buy the assets of a company, the price that he would pay for the assets is their net book value, as shown on the balance sheet.
8. Some companies, instead of having cash on their balance sheet, have a line of credit or bank indebtedness (i.e. negative balance in their bank current account)
9. Current assets are liquid assets and will be converted to cash within one year or one operating cycle.
13. Classify the following items into current assets, fixed assets, proprietary funds and current liabilities and prepare a balance sheet for Dilli Durbar Limited as at 31st March, 2011.
Land 2,50,000 Building 1,00,000Plant and machinery 50,000 Closing stock:Salary payable 15,000 Raw Material 15,000Wages payable 13,000 Work-in-Progress 10,000Electricity payable 2,000 Finished Goods 25,000Sundry debtors 40,000 Marketable securities 60,000Bills payable 60,000 Cash in hand 25,000Insurance charges 1,00,000 Cash from the bank 35,000Sundry creditors 1,10,000 Profit for the year 30,000
Additional information:
(a) Provide for depreciation on plant and machinery at the rate of 10 per cent per annum.(b) Sundry creditors include Rs.500 for goods supplied to a customer, who has become insolvent.
14. The following balances were extracted from the books of M/s Dimple Parathas Limited on 31st June, 2011. (All figures are in Rs.)
Share capital 10,00,000 Land 8,00,000
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Building 2,00,000 Debentures capital 2,00,000Bank loan 1,50,000 Profit (current year) 1,50,000Provision for taxation
50,000 Profit (previous year) 2,50,000
Machinery 5,00,000 Bills receivable 2,00,000Cash in hand 50,000 Sundry debtors 1,50,000Sundry creditors 1,00,000
Prepare Balance as per companies Act.
15. The following is the summarized profit and loss account of Shyam’s Enterprise for five consecutive periods. Complete the same by supplying the missing information.
Year 1 2 3 4 5
Sales 1000 ? 3000 ? 5000
Cost of goods sold 500 800 ? 2,500 3000
Gross Profit ? 700 1000 1,500 ?
Administrative expenses 100 ? 300 400 ?
Selling and distribution 150 200 ? 500 600
Operating Profit ? 200 400 ? 1000
Other Income 150 ? 200 ? 500
Net Profit before tax ? 300 ? 1000 ?
Provision for Corporate tax 200 ? 300 ? 750
Profit after tax ? 200 ? 500 ?
Retained earnings ? ? ? ? ?
16. Mr. Tanumoorthy was contemplating the acquisition of Kochi Oil Mills. The balance sheet of kochi oil mills as on 31st December, 2006, as supplied to Mr. Tanumoorthy by the current owners, is given below.
Assets ‘000 ‘000Current Assets:Cash 750Acccounts receivable 1,650inventory 2,200Prepaid rent and insurance 160Current assets 4,760Property,Plant and MachineryFreehold land 2,100Plant and equipment 4,850Less:accumulated depreciation 3,200 1,650Good will 3,700Total assets 12,210Liabilities and owners equity
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Current liabilitiesAccounts payable 1,350Wages payable 650Taxes payable 850Long term loans due within the year 600Current liabilities 3,450Long term loans 5,200Owner(s) equityOwner(s) capital 1,000Retained earnings 2,560 3,560Total liabilities and owners equity 12,210
Mr. Tanumoorthy had no training in accounting and therefore, decided to consult a management consultant. He approached KMG, well-known management consultants in Kochi.
Mr. Gopinath of KMG, who was dealing with this account, had detailed discussion with the accountant of Kochi Oil Mills. He collected the following information with respect to the balance sheet on the basis of the available working notes on the balance sheet and the discussions he had with the accountant.
The information gathered by Mr. Gopinath showed the following.
(a) Included in the computation of the cash balance is an amount of Rs.14, 500, received against cash sales and payments of Rs.32, 800, made on account of accounts payable during January 2007.
(b) Invoices were raised against customers for an amount of Rs.28, 400 against orders received during December, even though deliveries will be made only during January and February.
(c) Inventory was valued and recorded on the basis of the expected selling price. The cost of the inventory was computed at Rs. 1,985,000.
(d) Rentals amounting to Rs.65, 000 and insurance premium for 2007 in the amount of Rs.35, 000, have been paid in advance as of 31st December.
(e) Plant and equipment was revalued during December, raising the cost by Rs.9, 24,000. The accumulated depreciation represents the actual amount accumulated to date.
(f) It was found that good will was recorded on the basis of a suggestion made by a public accountant, using a formula. The calculation was made by taking the average rate of return of the coconut oil industry, multiplied by the net assets of the company at the beginning of 2006 and multiplying this product, by five.
After the above information was collected, Mr. Gopinath had a meeting with his principal and they decided that the first step should be revise the balance sheet on the basis of the generally accepted accounting principles.
Required: Prepare a revised balance sheet as Mr. Gopinath would have prepared. Also take note of the accounting principles involved in every change you make.
17(Completion of the accounting cycle)
Bharat Gupta promotes Bharat Traders, his proprietary firm, to start the business of trading in Product X on 1st
April 2011. He hires an office at Delhi @Rs.2, 500p.m. The following are the details of the transactions entered into by the firm during the month of April.
Date Tr.No Transactions AmountApril 1 1 Received cash from Bharat Gupta towards his capital 150000April 1 2 Opened current account with State Bank of India 135000April 1 3 Issued cheque for office rent for April 2500April 1 4 Purchased one scooter from Regent Automibilies on credit, all initial costs including
insurance borne by the vendor31500
April 1 5 Paid cheque towards down payment for scooter. Balance loan, against security of scooter, payable in 12 monthly instalments starting May 1 with interest @12% p.a.
7500
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on reducing balance.April 2 6 Purchased office furniture for cash 8500April 2 7 Purchased office equipment, paid cheque 11500April 5 8 Purchased 45 units of product X, issued a cheque 45000April 8 9 Sold 10 units of product X, received cheque. Deposited in SBI 12500April 10
10 Cheque issued for advertisement in the local daily delhi times 2200
April 12
11 Purchased 75 units of X from ABC &Co. on 15days’ credit 75750
April 16
12 Sold 25 units of X to RIL &Co on credit of one week 31875
April 19
13 Sold 5 units of X for cash 6425
April 23
14 Received cheque from RIL&Co. 31875
April 27
15 Issued cheque to ABC & Co 75750
April 28
16 Purchased 30 units of X from ABC &Co on 15 days credit 30450
April 28
17 Sold 20 units of X to RIL&Co. on credit for one week 25600
April 30
18 Salary paid to the office assistant Sudamma in cash 3500
April 30
19 Issued cheque to Bharat Gupta for his personal use 4000
April 30
20 Cash paid to the office owner for using his telephone during April 650
April 30
21 Cash paid to Preet Fill Station towards petrol consumed by the scooter during the month
550
Prepare Income Statement and Balance Sheet.
18. Classify the following items into different assets and liabilities as these would appear in the balance sheet under India GAAP. Also identify expense and income items.
S.No Item S.No
Item S.No Item
1 land 2 Building 3 Plant4 equipment 5 cash 6 Bank7 Bank overdraft 8 Marketable securities 9 Closing stock of finished goods10 Long term investments 11 furniture 12 Goodwill13 patents 14 copyrights 15 Preliminary expenses16 Capital 17 Debenture 18 Mortgage loan19 Sales for the year 20 purchases 21 Wages22 salary 23 royality 24 Accounts payable25 Outstanding expenses 26 Prepaid expenses 27 Accrued commission28 Commission received 29 Unearned interest 30 General reserve31 Advertising expenses 32 Power and fuel 33 Tax payable
19. Classify the following items into different categories of assets as provided under Indian GAAP.
Balance Sheet as on March 31, 2010
Liabilities Amount Assets AmountOwner’s capital 19,00,000 Land and building 15,30,000Secured bank loan 11,50,000 Plant and Machinery 11,10,000Bank overdraft 70,000 furniture 2,20,000Sundry creditors 30,000 investment 90,000Tax payable 2,85,000 stock 95,000Outstanding expenses 1,50,000 Sundry debtors 1,75,000
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Bills receivables 25,000Cash and bank 80,000Pre-paid expenses 15,000Marketable securities 20,000Preliminary expenses
40,000
goodwill 1,10,000patents 75,000
35,85,000 35,85,000
20. From the following trial balance, prepare trading account, profit and loss account and balance sheet.
Trial Balance as on March 31, 2010 (Rs. In Crore)
Particulars Amount Particulars AmountOpening stock 7,500 Sales 35,000Purchases 24,500 Discount 500Productive wages 5,000 Profit and loss a/c (opening balance) 1,503Discount 700 Share capital(Face Value Re.1) 10,000Salary 750 Sundry creditors 1,750Rent 495 General reserve 1,550Insurance premium 1,705Dividend paid 500Interim dividend paid 400Sundry debtors 3,750Plant and machinery 2,900Cash in hand and at bank 1,620Loan to managing director 325Bad debts 158Total 50,303 50,303
Additional information (adjustments)
(i) Closing stock was Rs.8,200 crore(ii) Insurance premium for 6 months at the rate of Rs.50 crore per annum was pre-paid(iii) One month rent Rs.35 crore was due but not paid(iv) Provide depreciation on plant and machinery @10%(v) Make provision for doubtful debts @5% and provision for discount on debtors @2%(vi) Goods costing Rs.1, 000 crore were dispatched on March 28, 2010 but a bill for the amount for Rs.
1,250 crore was raised only on April2, 2010. One more credit sales transaction of Rs.250 was completed in march, 2010 but not recorded in the books of accounts
(vii) Bank statement revealed that bank had debited us for bank charges of Rs.1 crore and for interest Rs.2 crore but not recorded in cash book.
(viii) A cheque of Rs.3 crore deposited by us was dishonored, entered in passbook but not in cash book; it was disclosed that party had been declared insolvent and nothing is recoverable.
(ix) Cheques of Rs.5 crore issued but not presented for payment till march 31, 2010(x) Goods costing Rs.200 crore were destroyed by fire and insurance company admitted the claim for Rs.
175 crore(xi) In case of sufficient net profit transfer Rs.2,000 crore to general reserve(xii) Remaining profit, if any is to be kept as surplus.
21. (Consideration in the form of cash)
Zigna limited sold goods priced Rs.9,00,000 to Sigma Limited on July 1, 2010 for a credit period of two months, which is also the normal credit period in the industry to which Zigna limited belongs. Zigna allows for delayed payment but not exceeding a total of 12 months from the date of sale. In such case, the customer is required to pay
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a interest for the total period @4% p.a. the rate of interest prevailing in the industry is 14% p.a. show how revenue is to be recognized when sigma limited makes the payment
(a) Within two month period and(b) At the end of 12 months
22. Prepare the final accounts for the year ending March 31, 2010 using the following trial balance.
particulars Amount Particulars AmountStock 340000 Equity share capital (face value Rs.10 each) 1250000Furniture 100000 10% debentures (as on April 1,2009) (Secured) 250000Discount 20000 Bank loan (Unsecured) 3,22,500Loan to director 40000 Bills payable 62500Advertisement 10000 Creditors 78000Baddebts 17500 Sales 2134000Commission 60000 Rent received 28000Purchases 115950
0Profit and loss account 69500
Plant and Machinery 430000 Provision for depreciation on machinery 73000Rentals 12500Current account 22500Cash 4000Interest on bank loan 58000Preliminary expenses 5000Fixtures 150000Wages 450000Consumbles 42000Freehold land 773000Tools and equipment 122500Goodwill 132500Debtors 143500Bills receivables 76500Dealers aids 10500Transit insurance 15000Trade expenses 36000Delivery van expenses 27000Debenture interest 10000Total 426750
04267500
Additional information:
1. Closing stock was Rs.4,11,5002. Wages for the month of March Rs.65,000 was due but not paid.3. Make provision for tax @20% of EBT4. Transfer Rs.50,000 to reserve account5. Equity dividend is proposed @10% subject to the availability of sufficient profits.
23. The following balances have been taken from the books of Kashish Packaging limited as on March 31, 2010 (Rupees in Crore).
particulars Amount Particulars AmountCash in hand 1900 Share capital 45000
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Cash at bank 6300 9.00% debentures 15000Bills receivables 2000 Accounts payable 14500Investments 500 Profit and loss account 1000Sundry deposits 200 Secured loan 25000Advances 4250 Gross profit 87500Debtors 37500 Suspense account 1500Land and building 52500 Outstanding expenses 6000Furniture 2250 Sale of furniture 150Motor car 12500 Bank overdraft 1550Closing stock 47500 Miscellaneous expenses 200Establishment expenses 17600Repairs and renewals 1,300Motor car expenses 2,100Travelling expenses 800Printing and stationery 450Telephone and internet 600Interest on debentures 1000Sales commission 1600Sales promotion 1750Managing director’s remuneration 1,800Director’s fee 1000Total 197400 197400
The following additional information is also available:
1. Share capital is represented by Rs.9,000 crore equity shares of Rs.5 each fully called and paid2. Profit and loss account balance of previous year is after charging short provision for tax of last year of
Rs.2500 crore3. Bank statement on April 5, 2010 shows interest on loan debited by bank on march 31, 2010 of Rs.355 crore4. Bank statement shows a wrong debit by bank of Rs.1500 crore on march 26,20105. Sales of furniture represents sale of an old furniture having original cost Rs.400 crore and accumulated
depreciation Rs.200 crore6. Cost of land Rs.15000 crore is included in land and building7. Sales promotion charges include material on hand Rs.75 crore8. Advances include Rs.1500 crore as security deposit for internet connection out of which Rs.75 crore is to be
written off for the current year9. An amount of Rs.1000 crore and Rs.600 crore debited to purchase and wages respectively belong to furniture
making during the year.10. Charge depreciation building @2.5%, furniture 5% motor car 20%11. Managing director is entitled for 10% commission on net profit subject to minimum Rs.150 crore per month.
The net profit for this purpose is to be taken without charging income tax provision and his remuneration itself.
12. Bills discounting not matured by the end of the year Rs.750 crore. 13. Make a provision for income tax Rs.32,500 crore14. Make the following appropriation
(a) Transfer Rs.10,000 crore to general reserve(b) Dividend on paid-up equity @12%
Prepare final account for the year ending March 31, 2010.
24. Selected balance sheet items are shown for the Micro tech company. Compute the missing amounts for each of the four years. What basic accounting equation did you apply in making your calculations?
Particulars Year 1 Year 2 Year 3 Year 4Current assets 113624 ? 85124 ?Noncurrent assets ? 198014 162011 151021
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Total assets 524600 ? ? 220111Current liabilities 56142 40220 ? ?Noncurrent liabilities ? ? 60100 30222Paid-in-capital 214155 173295 170000 170000Retained earnings 13785 (3644) 1452 2350Total liabilities and owner’s equity
524600 288456 ? 220111
25. Selected income statement items are shown for Astrotech Company. Compute the missing amounts for each of the four years. What basic accounting equation did you apply in making your calculations?
(Hint-To estimate the Year 4 missing numbers compute the typical percentage each expense item is of sales for year 1 to 3 and apply the percentage figure for each expense item to year 4’s sales.)
Particulars Year 1 Year 2
Year 3 Year 4
Sales 12011 ? 11545 10000Cost of goods sold 3011 2992 ? ?Gross margin ? 8976 8659 ?Other expenses 6201 6429 ? ?Profit before taxes 2799 ? 2363 ?Tax expenses ? 1019 945 ?Net income 1679 1528 1418 ?
26. As on 31st December, X Ltd had – Cash Rs. 12,000/-, Inventory Rs. 95,000/- and other items that originally cost Rs. 13,000/-. It had borrowed Rs. 40,000/- from Commercial Bank. Prepare a Balance Sheet of X Ltd on 31 st
December.
27. Answer the following questions.
ABC Ltd has assets Rs. 125,000/- and equity Rs. 68,500/-. What is the amount of its liabilities? Liabilities & equity of XYZ Ltd are Rs. 46,200/- and 35,800/- respectively? What is the amount of it’s
assets? PQR Ltd has total assets Rs. 94,000/- and liabilities Rs. 37,500/-. What is the amount of owner’s equity? Hypothetical Ltd started June 2008 with assets of Rs. 150,000/- and liabilities of Rs. 90,000/-. During
June owner’s equity increased by Rs. 24,000/- and liabilities decreased by Rs. 10,000/-. What is the amount of total assets at end of June 2008?
Honest Ltd has total assets of Rs. 225,000/-. Equity was 30% of total liabilities. How much are equity & liabilities?
External debt funds Rs. 60,000/- represented 40% of total assets. How much are total assets and how are the balance assets funded?
28.Ethical Ltd had assets of Rs. 500,000/- as on 31.03.2007. Assets were funded by equity 30%, debt 50% and balance by other liabilities. During 2007-08, assets increased by 15%, debt decreased by 10%, other liabilities increased by 20%. Draw the balance sheet as on 31.03.2008.
29.On 31st March 2008, Anita had Rs. 2,500/- in cash and Rs. 10,000/- in bank account, Inventories originally purchased for Rs. 20,000/-. She had also borrowed from bank and Rs. 15,000/- was left unpaid. An amount of Rs. 5,000 was pending payment towards the purchase of inventories. Rs. 500/- towards telephone charges was due for payment. Sales worth Rs. 3,000/- was to be recovered from debtors. She had also purchased furniture & office equipment for Rs. 8,000/- Draw the balance sheet of Anita as on 31.03.2008.
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30. Selected balance sheet items of Microtech Ltd are given below. Calculate the missing items
2005 2006 2007 2008
Fixed Assets ?? 198,014 162,011 151,021
Current Assets 113,624 ?? 85,124 ??
TOTAL 524,600 ?? ?? 220,111
Share Capital 214,155 173,295 170,000 170,000
Retained Earnings 13,785 ?? 1,452 2,350
Long Term Liabilities ?? ?? 60,100 30,222
Current Liabilities 56,142 40,220 ?? ??
TOTAL 524,600 288,456 ?? ??
31. Selected Balance Sheet items of Tata Motors Ltd are shown. Complete the missing items.
2007 2006 2005 2004
SOURCES OF FUNDS
SHAREHOLDERS’ FUNDS 6,869.75 5,537.07 ?? 3,593.60
LOAN FUNDS 4,009.14 ?? 2,495.42 1,259.77
OTHER LIABILITIES ?? 622.54 565.28 514.15
TOTAL FUNDS EMPLOYED 11,665.72 ?? 7,172.09 ??
APPLICATION OF FUNDS
FIXED ASSETS 6,394.58 4,521.23 ?? 3,247.80
INVESTMENTS ?? ?? 2,912.06 3,056.77
CURRENT ASSETS, LOANS AND ADVANCES ?? 9,487.81 7,146.19 3,695.70
CURRENT LIABILITIES AND PROVISIONS ?? ?? 6,600.83 ??
NET CURRENT ASSETS 2,784.05 2,545.95 ?? 959.24
MISCELLANEOUS EXPENDITURE 10.09 14.12 18.16 ??
TOTAL ASSETS 9,096.45
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32. Selected P&L items of Astrotech Ltd. are given below. Complete missing items.
2005 2006 2007 2008
Sales 12,011 ?? 11,545 10,000
Cost of Goods Sold 3,011 2,992 ?? ??
Gross Profit ?? 8,976 8,659 ??
Other Expenses 6,201 6,429 ?? ??
Profit before Taxes 2,799 ?? 2,363 ??
Taxes ?? 1,019 945 ??
Profit after Taxes 1,679 1,528 1,418 ??
(Hint: To estimate missing items of 2008, calculate typical % of each item to sales for previous years and apply the same)
33. Selected items from P&L Statement of Ashok Leyland are given. Fill in the blanks.
2002-03 2003-04 2004-05 2005-06 2006-07
Sales 30,739.95 33,920.19 52,476.57
Other Income 537.55 329.74 708.03
Total 30,892.88 72,389.79
Expenses 31,241.79 38,811.23 48,283.31
Profit before tax 1,701.02 3,550.10 6,045.06
Taxes 498.90 928.80 1,249.80
Profit after tax 1,935.80 2,714.10 4,412.86
34. Prepare the Balance Sheet of Great Ltd. as on 30th June using following balances-
Description Rs. Description Rs.
Accounts Payable 241,000 Cash 89,000
Accounts Receivable 505,000 Equipment (at cost) 761,000
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Accrued Expenses 107,000 Provision for Tax 125,000
Accumulated Depreciation Inventories 513,000
-Buildings 538,000 Investments 320,000
-Equipment 386,000 Land 230,000
Bonds Payable 700,000 Marketable Securities 379,000
Building (at cost) 1,120,000 Notes Payable 200,000
Share Capital 1,000,000 Retained Earnings ??
35. Account Balances as on 31.03.2008 of Udaya Industries Pvt. Ltd are given below.
Capital 100 Outstanding Expenses 10
Loans 700 Salaries 270
Sales 3190 Outstanding Salaries 20
Purchases 2680 Advance Tax 100
Sales Returns 157 Debtors 1583
Purchase Returns 70 Creditors 1320
Interest 70 Cash 205
Furniture 80 Prepaid expenses 20
Expenses 230 Prepaid salaries 15
Draw the financial statements on that date.
36. Your company purchases a 2 year fire insurance policy in Oct 2005 for a premium of Rs. 30,000/-. Explain how this will affect the P&L for 2005, 2006, 2007 and B/S for these years.
37. Beginning Inventory Rs. 27,000Ending Inventory Rs. 31,000
Purchases Rs. 78,000
What is the cost of goods sold? How will it change if -
Ending inventory is reduced by Rs. 10,000/- Purchases increased by Rs. 15,000/- Beginning inventory is only Rs. 18,000/- Purchases was Rs. 90,000/- and ending inventory was Rs. 10,000/-
38. Lewis Corporation has the following details pertaining to inventory from 2005-07. Calculate the Cost of Goods Sold and Closing inventory for each of years using FIFO, LIFO and Weighted Average.
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Particulars 2005 2006 2007
Qty Rate Qty Rate Qty Rate
Opening Balance1,840 20.00 1,020 1,040
Purchases
Q1 600 20.25 700 21.50 1,000 22.50
Q2 800 21.00 700 21.50 700 22.75
Q3 400 21.25 700 22.00 700 23.00
Q4 200 21.50 1,000 22.25 700 23.50
Sales
Q1 800 34.00 750 34.50 900 34.90
Q2 980 34.10 620 35.00 800 34.25
Q31,040 33.75 980 35.10 550 33.75
Q4 0 730 34.75 700 33.00
What is the gross profit, gross profit margin for each year under each method?
39. A summary of Udupi Enterprises’ transactions during June is given below. State which of these events would be recorded in the income statement of June.
Additional funds were required, Rs. 200,000/- were borrowed from bank Cash Rs. 20,000/- was collected from sale made in May Cash sales during June were Rs. 15,000/- Electricity bill for June Rs. 1,075/- was received Telephone bill of Rs. 910/- for Apr-May was paid Credit sales in June were Rs. 45,000/- Interim Dividend was paid Rs. 750/-
40. C.K.Ltd had the following transactions in June. Decide which of these represented expenses for June- Received order for goods worth Rs. 25,000/- to be delivered in July Paid staff Rs. 9,750/- for work performed in June. Inventory worth Rs. 1,725/- was found obsolete Sold goods costing Rs. 25,000/- in June. Paid in June for radio advertisements – Rs. 750/- Purchased inventory worth Rs. 27,000/-
41. Explain when and how income statement is affected by the following transactions- Purchased equipment having useful life of 5 years for Rs. 40,000/- Purchased land for Rs. 1,35,000/- Purchased inventory worth Rs. 7,000/- in Nov. Sold half the inventory in Dec for Rs. 5,000/-, sold
the remainder in Jan for Rs. 6,000/-. (Calendar year is financial year) Subscribed to a magazine for 2 years on 1st Oct – Rs. 480/-
42. School Depot, a book store has just finished its busy season at the beginning of the new academic year. Prepare the income statement for June based on the following inputs-
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Total Sales – Rs. 15,00,000/- Salaries & Wages – 15% of sales Items were priced at 1.5 times cost Rent for the month was Rs. 5,000/- Misc. Expenses – 1.5% of cost of good sold Advt. & Promotion Expenses – 5% of sales
43. Sujit started his business on 01.09.2007 with his savings of Rs. 50,000/- and borrowings from family of Rs. 50,000/- He rented an office space for Rs. 3,000/- p.m. and deposit equivalent to 5 month’s rent. The monthly rent was payable by 5th of next month. He paid another Rs. 5,000/- for telephone & electric installations, Rs. 10,000/- for office equipment & furniture. His purchases till 31.03.2008 amounted to Rs.100,000/- (20% on credit of which 50% was left unpaid). He sold 75% of these at a mark-up of 25%. Selling expenses were 10% of selling price. He also incurred some other administrative expenses to the tune of Rs. 20,000/-. He took a bank loan @ 12% pa on 01.01.2008 of Rs. 50,000/-Interest was payable on quarterly basis. 10% of sales were yet to be recovered. Furniture was expected to have reduced value of 95%.
Draw the P&L and Balance Sheet of Sujit as on 31.03.2008
44. Extracts of Liabilities from the BS of 2 companies operating in the same industry are given below.
X Ltd Y Ltd
Accounts Payable 15,000 120,000
Accrued Liabilities 11,000 63,000
Short term loans 137,000 350,000
Long Term loans 250,000 450,000
Capital lease 12,000 13,000
Income Tax Liabilities 50,000 78,000
Share Capital 105,000 600,000
Retained Earnings 62,000 196,000
642,000 1,870,000
Which company uses more supplier financing? Which company has proportionately more long term debt?
45. On 01.01.2008 Excell Industries Ltd started its business. Events during January are listed Shares issued for cash – Rs. 11,00,000/- Equipment purchased for cash – Rs. 250,000/- Borrowed from bank @12% pa Rs. 800,000/- to be repaid in 3 years. Interest is payable on
quarterly basis. Purchased building for Rs. 25,00,000/- by paying cash Rs.10,00,000/-. The balance is financed
with an 8% mortgage repayable in 15 years. Interest is payable bi-annually. Purchased inventory on account for Rs. 225,000/- Paid insurance premium for one year Rs. 15,000/- Sold 10% of inventory at 1.25 times Paid on account for inventory Rs. 75,000/-
Prepare a balance sheet as on 31st January, 2008. Excell Industries Ltd had issued 11,000/- shares. In your opinion, what is the value of one share of the company?
46. Extracts of Assets from the BS of 2 companies operating in the same industry are given below.
A Ltd B Ltd
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Intangible Assets 56,000 568,000
Property & equipment 450,000 950,000
Long term assets 20,000 45,000
Long Term Investments 50,000 242,000
Short Term Investments 14,000 75,000
Inventory 120,000 200,000
Accounts Receivable 38,000 160,000
Cash 1,000 2,000
749,000 2,242,000
Which company maintains a higher level of inventory? Which company devotes proportionately more assets to long term investments? Which company is more likely to have acquired another company some time in the past? Explain
your answer.
47. Manipal Industries Ltd had the following position as on 31.03.2008.
Rs - lakhs
Liabilities Rs. Assets Rs.
Equity 2,140.00 Land & Building 1,234.00
Long Term Loan 1,540.00 Plant & Machinery 2,350.00
Short Term Loan 920.00 Furniture & Fittings 350.00
Creditors 345.00 Motor Vehicles 450.00
Salary Outstanding 15.00 Inventory 160.00
Debtors 250.00
Cash & Bank 166.00
4,960.00 4,960.00
Summary of transactions for Apr-Jun’08 are given below.
Rs-laks
Apr'08
Credit Purchases 175
Credit Sales 200
Cash Expenses 15
17
Cash received from customers 160
Salary for Mar'08 paid 15
Cash paid to suppliers 150
May'08
Salary for Apr'08 paid 20
Cash purchases 55
Cash Sales 50
Credit Purchases 250
Credit Sales 75
Cash Expenses 25
Jun'08
Cash Expenses 25
Salary for May'08 paid 20
Depreciation on -
Building 60
Plant & Machinery 235
Furniture 35
Motor Vehicles 90
Cash Sales 70
Cash received from customers 80
Cash paid to suppliers 150
Credit Sales 100
Additional Information-
Goods lying at the end of Jun’08 were worth Rs. 170 lakhs.
Salary for Jun’08 paid in Jul’08 was Rs. 20 lakhs
Show the position of assets & liabilities as on 30.06.2008. Interpret the changes in equity.
48. List of account balances of Pai Steel Industries Ltd as on 31.03.2008 is given below.
Rs-laks Rs-laks
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Equity Capital 1,000 Telephone 30
General Reserve 2,000 Electricity 40
10% Preference Shares 500 Selling Expenses 50
10% Loans 2,000 Audit fees 10
Sales 4,400 Legal Expenses 30
Sales Tax 200 Income from Investments 15
Excise Duty 400 Loss on sale of fixed assets 20
Opening Stock 200 Interest 200
Purchases 1,200 Accumulated Depreciation 500
Salaries 800 Fixed Assets 5,000
Power & Fuel 70 Debtors 600
Repairs & Maintenance 50 Creditors 200
Salaries 400 Investments 1,000
Advertisement 60 Cash & Bank 15
Rent 40 Advance Tax 200
Closing Stock is valued at Rs. 180 lakhs. Assume corporate tax @ 35%.
The company policy is to transfer 20% of profits to reserves.
Company proposes a dividend of 20%. Dividend Distribution Tax is 10%
Prepare P&L, Balance Sheet.
49. Fast Growth Ltd is anticipating revenues & earnings growth of more than 20% for each of the next 3 years. But, it may need additional financing to accomplish this. For most part of this year its current assets & liabilities totaled Rs. 500,000/- & Rs. 400,000/- respectively. During the last 2 months of the year it entered into the following transactions –
It launched an aggressive campaign to collect its outstanding. It decided to allow customers a 2% discount on all receivables paid within 20 days of notice.
It allowed its inventories to decrease by not making any further purchases during these 2 months and decided to replenish stocks only in the next year.
Using cash collected from receivables it paid most of its liabilities and also paid some bills that were not due till next year.
Discuss the significance of each of these transactions to the firm’s financial position.
What do you think it is trying to accomplish by the moves listed?
50. The account balances of Well Done Ltd for the year ended 31st December 2007 are –
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Advertising Expenses 2,500 Interest 200
Retained Earnings (1/1/07) 50,000 Repairs & Maintenance 2,500
Cost of good Sold 40,000 Sales84,000
Delivery Expenses 6,000 Salaries 5,000
Depreciation 5,000 Supplies expenses 750
Insurance 1,000 Income tax rate 25%
Salaries include Rs. 1,000/- paid as dividends to the owners.
Prepare a P&L Statement for 2007 in vertical form.
Assuming that the share capital is Rs. 75,000/-, what is the total owner’s equity on 31.12.2007? At what mark-up are the goods being sold currently? What will the company’s net income be at a mark-up of 180%, at 225%?
DEPRECIATION:
51. A company whose accounting year is calendar year, purchased on 1st April, 2010 Machinery costing Rs.30, 000. It purchased further machinery on 1st October, 2010 costing Rs.20, 000 and on 1st July, 2011 costing Rs. 10,000. On 1st
January, 2012 one third of the machinery installed on 1st April, 2010 became obsolete and was sold for Rs.3, 000. Show how Machinery account would appear in the books of the company, it being given that Machinery was depreciated by Fixed Installment Method at 10 p.c. per annum.
52. M/s Suba Pharmaceuticals has imported a machine on 1st July, 2009 for Rs.1, 60,000, paid customs duty and freight Rs. 80,000 and incurred erection charges Rs. 60,000. Another local machinery costing Rs. 1, 00,000 was purchased on January 1, 2010. On 1st July, 2011 a portion of the imported machinery (value one third) got out of order and was sold for Rs. 34,800. Machinery was purchased to replace the same for Rs. 50,000. Depreciation is to be calculated at 20% p.a. on straight line method. Show the machinery account for 2009, 2010 and 2011.
53. A manufacturing concern whose books are closed on 31st March. Purchased Machinery for Rs. 1, 50,000 on 1st
April 2008. Additional machinery was acquired for Rs. 40,000 on 30 th September, 2009 and for Rs.25, 000 on 1st April, 2011. Certain machinery, which was purchased for Rs. 40,000 on 30 th September, 2009, was sold for Rs.34, 000 on 30 th
September, 2011.
Give Machinery account for the year ending 31st March, 2012 taking into account depreciation at 10% per annum on the written down value method.
54. (Commercial Substance and Exchange of Non-Monetary Assets) Ramesh limited has a machine with carrying amount Rs. 4,50,000 and Kapil limited has a machine with carrying amount Rs. 4,35,000. Both the companies decide to exchange these machines for the mutual benefit. The active market value of the machines is Rs. 4, 95,000 and Rs. 4, 78,000, respectively. Show how these are to be recognized in the books of these companies when
(i) There is commercial substance and (ii) There is no commercial substance from the exchange transaction
55. (Expenditure on Property, Plant and Equipment) the following facts have been extracted from the books of accounts of Reliable Enterprises limited. The company acquired a new plant and machinery costing Rs. 12, 00,000 and
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spent Rs.30, 000 as carriage and Rs.20, 000 as installation charges to install it. To finance it, the company raised a loan of Rs. 7, 00,000 on July 1, 2010 bearing a rate of interest 12% p.a. The plant and machinery was ready for commercial production on December 31, 2010. The loan was repaid on March 31, 2011 along with interest thereon. In the month of February 2011, Rs.5, 000 were spent for the routine inspection and Rs.15, 000 for annual maintenance contract (AMC) for 12 months.
Show how these costs are to be recognized the year ending March 31, 2011.
56. (Change of method) On April 1, 2007, a machine was purchased for Rs. 70,000. Estimated useful life of machine is five years with an estimate of zero salvage value at the end. Company provides depreciation @20% p.a. as per straight line method. Till the year 2008-09, the depreciation was charged as per SLM and from the year 2009-10, the method of charging depreciation was changed to WDV method @30% per annum. Show how depreciation is to be showed in these years and how such change is to be effected as per AS-6 and IAS-16.
57. A second hand machinery was purchased on 1st January, 2007, for Rs. 30,000 and Rs. 6,000 and Rs. 4,000 were spent on its repairs and erection immediately. On 1st July, 2008 another machinery was purchased for Rs. 26,000 and on 1st July, 2009 the first machinery having become obsolete was auctioned for Rs. 30,000. On the same date another was purchased for Rs. 25,000. On 1st July, 2010 the second machinery was also sold off and it fetched Rs. 23,000. Depreciation was provided on machinery at the rate of 10 per cent on the original cost annually on 31 st December. In 2010 the method of providing depreciation was changed to the written down (diminishing) value method; the rate of depreciation being 15 per cent.
You are required to prepare machinery account for the calendar years mentioned heretofore.
58. Arpit Industries Limited has given following details.
Cost of the machine Rs. 52, 00,000
Expected Useful Life (years) 5
Consideration Expected on Disposal Rs. 2, 80,000
Estimated Cost of Removal of the Machine for Disposal Rs. 20,000
Estimated Realizable Value Rs. 2, 60,000
Required: (a)
(i) Determine the rate of depreciation as per SLM.(ii) Determine the annual depreciation and accumulated depreciation for all the years as per SLM.(iii) Show the disclosure of machine in the balance sheet for all the years.(iv) State the accounting policy on depreciation of machine.
Required: (b)
(i) Determine the rate of depreciation as per WDV(ii) Determine the annual depreciation and accumulated depreciation for all the years as per WDV(iii) Show the disclosure of machine in the balance sheet for all the years(iv) State the accounting policy on depreciation of machine.
(v) Higher Company disposed assets in 2006 – particulars are:Purchase Original Disposal Disposal Useful Method
Date Cost Date Proceeds Life of Deprn
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1/3/1998 70,300 1/6/2006 14,300 10 SLM
1/8/2005 96,000 1/11/2006 63,000 5 WDV-20%
For assets purchased before July 1st – full depreciation for the year.
For assets purchased on or after July 1st – half depreciation for the year.
For assets sold after June 30th – half depreciation for the year.
For assets sold on or before June 30th – no depreciation for the year.
Estimated residual value was NIL for both assets.
Calculate depreciated value of asset on 1st January 2006 and depreciation for the year.
Was there any profit/loss on sale of these assets?
INVENTORIES:
59. The following transactions occur in the purchase and issue of a material:
January 2 Purchased 4,000 units @ Rs. 4.00 per unit.
January 20 Purchased 500 units @ Rs. 5.00 per unit.
February 5 Issue 2,000 units.
February 10 Purchased 6,000 units @ Rs. 6.00 per unit.
February 12 Issued 4,000 units.
March 2 Issued 1,000 units.
March 5 Issued 2,000 units.
March 15 Purchased 4,500 units @ Rs. 5.50 per unit.
March 20 Issued 3,000 units.
From the above prepare stores ledger account
(a) By adopting FIFO method of charging material issued and(b) By adopting LIFO method.
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60. Adarsh Company purchased and issued the material in the following order:
Date Purchase/sale
Units Unit cost
January 1 Purchase 300 Rs. 3.00January 4 Purchase 600 Rs.4.00January 6 Issue 500January 10 Purchase 700 Rs.4.00January 15 Issue 800January 20 Purchase 300 Rs.5.00January 23 Issue 100
Ascertain the quantity of closing stock as on 31 st January and state its value under each of the following methods of pricing uses: (a) Weighted Average (b) FIFO (c) LIFO.
61. The following records have been extracted from the stores ledger of DXL limited
Date Purchase/sale Units Unit cost02/01/07 Purchase 10,000 10021/01/07 Purchase 7,000 9531/01/07 Purchase 2,200 9610/02/07 Purchase 800 10015/03/07 Purchase 6,200 10115/01/07 Issue 850028/01/07 Issue 3,50021/02/07 Issue 7,00002/03/07 Issue 80029/03/07 Issue 4,400
Prepare stock register under continuous inventory valuation system using (a) LIFO (b) FIFO (c) simple average of prices and (d) weighted average of prices method.
CASH FLOW STATEMENT:
62. Calculate the Cash from operations
Trading and Profit and loss account
For the year ending 31st March, 2011
Purchases 20,000 Sales 30,000Wages 5,000Gross profit 5,000Total 30,000 30,000Salaries 1,000 Gross profit 5,000Rent 1,000 Profit on sale of
building:Depreciation on plant 1,000 Book value: Rs. 10,000Loss on Sale of Furniture
500 Sold for: Rs. 15,000 5,000
Good will written off 1,000Net Profit 5,500Total 10,000 10,000
63. Compute cash from operating activities from the following figures.
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(i) Profit for the year 2011 is a sum of Rs. 10,000 after providing for depreciation of Rs. 2,000.
(ii) The current assets of the business for the year ending 31st December, 2010 and 2011 are as follows.
Item 31st December 2010 31st December 2011Sundry debtors 10,000 12,000Provision for doubtful debts
1,000 1,200
Bills receivables 4,000 3,000Bills payable 5,000 6,000Sundry creditors 8,000 9,000Inventories 5,000 8,000Short-term investments 10,000 12,000Outstanding expenses 1,000 1,500Prepaid expenses 2,000 1,000Accrued income 3,000 4,000Income received in advance 2,000 1,000
64. From the following profit and loss account, you are required to compute Cash from Operating Activities:
Profit and loss account
For the year ending 31st December, 2011
Salaries 5000 Gross profit 25,000Rent 1000 Profit on sale of land 5000Depreciation 2000 Income tax refund 3000loss on sale of plant 1000Goodwill written off 4000Proposed dividends 5000Provision for taxation
5000
Net profit 10000Total 33000 33000
65. From the following balance sheet as on 31st December, 2010 and 31St December, 2011, you are required to prepare cash flow statement.
Liabilities 2010 2011 Assets 2010 2011Share capital 1,00,000 1,50,00
0Fixed assets 1,00,00
01,50,000
Profit and loss account 50,000 80,000 Good will 50,000 40,000General reserve 30,000 40,000 Inventories 50,000 80,00012% Bonds 50,000 60,000 Debtors 50,000 80,000Sundry creditors 30,000 40,000 Bills Receivables 10,000 20,000Outstanding expenses 10,000 15,000 Bank 10,000 15,000Total 2,70,000 3,85,00
02,70,000
3,85,000
66. From the following information you are required to prepare a Cash Flow Statement of C.P. Limited for the year ended 31st December, 2011 using the indirect method.
Balance Sheet
Liabilities 2010 2011 Assets 2010 2011Share capital 70000 70000 Plant and 50000 91000
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machinerySecured loans 40000 Inventory 15000 40000Creditors 14000 39000 Debtors 5000 20000Tax payable 1000 3000 Cash 20000 7000Profit and loss account
7000 10000 Prepaid expenses 2000 4000
Total 92000 162000 92000 162000
Profit and loss account
For the year ending 31st March, 2011
Opening inventory
15000 Closing stock 40000
Purchases 98000 Sales 100000Gross profit 27000total 140000 140000General expenses 11000 Gross profit 27000Depreciation 8000Taxes 4000Net profit 4000Total 27000 27000Dividend 1000 Balance b/f 7000Balance c/f 10000 Net profit b/d 4000Total 11000 11000
67. The following details are available from a company
Balance Sheet
Liabilities 2010 2011 Assets 2010 2011Share capital 70000 74000 Cash 9000 7800Debentures 12000 6000 Debtors 14900 17700Reserve for doubtful debts
700 800 Stock 49200 42700
Trade creditors 10360 11840 Land 20000 30000Profit and Loss account 10040 10560 Good will 10000 5000Total 103100 103200 103100 103200
In addition, you are given:
a) Dividend paid total Rs. 3,500b) Land was purchased for Rs. 10,000c) Amount provided for amortization of good will Rs. 5,000d) Debentures paid off Rs. 6,000
Prepare cash flow statement.
68. The following are the comparative balance sheets of XYZ limited as on 31st December 2010 and 2011
Balance Sheet
Liabilities 2010 2011 Assets 2010 2011Share capital 350000 370000 Land 100000 150000Profit and loss account 50400 52800 Stocks 246000 2135009% debentures 60000 30000 Good will 50000 25000Creditors 51600 59200 Cash and bank 42000 35000
Temporary investments 3000 4000Debtors 71000 84500
Total 512000 512000 512000 512000Other particulars provided to you are:
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a) Dividends declared and paid during the year Rs. 17,500b) Land was revalued during the year at Rs. 1,50,000 and the profit on revaluation transferred to profit and loss
account.
You are required to prepare the cash flow statement.
69. Calculate the Cash from operations from the following additional information
Item 31st December 2010 31st December 2011Stock 10000 12000Debtors 15000 20000Creditors 5000 7500Bills receivables 5000 8000Outstanding expenses 3000 5000Bills payable 4000 2000Prepaid expenses 1000 500
70. Classify the following items into operating, investing & financing cash flows.
Shares Issued Buy back of shares
Loan installment paid Interest on loan paid
Debentures redeemed Debentures converted into shares
Dividends paid Shares in another company purchased
Interest/Dividend received Cash subsidy received
Fixed Assets purchased Loss on sale of fixed assets
Taxes paid Provision for expenses
Depreciation Expenses due
Decrease in current assets Increase in current liabilities
Decrease in current liabilities Increase in current assets
71. Following data is available for a firm – Cost of Goods Sold Rs. 350,000/- Beginning Inventor Rs. 40,000/- Ending Inventory Rs. 60,000/- Beginning Accounts Payable Rs. 25,000/- Ending Accounts Payable Rs. 20,000/-
How much did the firm pay for inventory during the year?
72. From the following data determine cash flows from operating activities – Net income for the year was Rs. 275,000/- Accounts Receivable increased by Rs. 45,000/- Prepaid Insurance increased by Rs. 1,400/- Supplies decreased by Rs. 2,000/- Accounts payable decreased by Rs. 8,000/- Depreciation for the year was Rs. 9,000/- Net income included a gain of Rs. 17,000/- on sale of land
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73. Prepare a cash flow statement for the year ended Dec’07- Revenues received in cash – Rs. 220,000/- Operating expenses paid in cash – Rs. 148,000/- Land Purchased – Rs. 165,000/- (50% payment made) Borrowed from bank – Rs. 50,000/- Shares issued for cash – Rs. 100,000/- Shares issued for supply of furniture & equipment – Rs. 20,000/- Dividend declared – Rs. 6,000/-
74. Transaction of a consultancy firm during Jan-Mar’08 were as follows –
Each owner invested Rs. 40,000/- in cash as capital The firm borrowed an additional Rs. 100,000/- from a local bank Fees earned during the 3 months amounted to Rs. 125,000/-, of which Rs. 75,000/- had not yet
been collected Operating expenses amounted to Rs. 132,000/-, of which Rs. 30,000/- had not been paid in cash
as yet. Computers & office equipment were purchased for Rs. 40,000/- in cash
Prepare the financial statements for the 3 months.
Explain the relationship between income statement & cash flow statement.
75. Feel-Good Ltd started operations in Sep’07. Transactions till Mar’08 were-
Owner’s invested Rs. 200,000/- in cash for exchange of shares Total commission earned was Rs. 325,000/-. Of this, Rs. 75,000/- was collected only in April’08. Operating expenses paid were Rs. 208,000/-. Bills worth Rs. 40,000/- towards expenses pertaining to
this period were left unpaid. Rs. 75,000/- was borrowed from a local bank. Property, Plant & Equipment were purchased for Rs. 130,000/-. Dividends declared were Rs. 15,000/-, of which Rs. 10,000/- had already been paid. Excess cash of Rs. 20,000/- was invested in shares of other firms. Dividends earned on the investments was Rs. 1,400/-, of which Rs. 1,000/- was received in Mar’08.
Prepare an income statement & cash-flow statement. (ignore taxes).
What information does the cash flow statement contain that cannot be learned from the income statement?
Dividends were paid in cash to the extent of Rs. 10,000/-. Do you think this was a good decision? Explain. How else could this amount have been utilized?
76. Assume that you own & operate a small business. You have just completed drawing your forecasts & budgets for next year & realize that you will need an infusion of Rs. 30,000/- in cash to operate through the year. You are reluctant to seek a partner as you do not want to dilute your control over the business. Preliminary talks with various lenders do not seem encouraging.
What can you do to raise Rs. 30,000/- cash necessary to continue operations?
77. The following information is for Flag Company –
2007 2006
Cash 12,000 15,000
Other Current Assets 25,000 22,000
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Equipment108,000 50,000
Accumulated Depreciation-20,000 -16,000
Land 30,000 30,000
155,000 101,000
Current Liabilities 26,000 22,000
Long Term Debt 50,000 25,000
Equity Shares 50,000 40,000
Retained Earnings 29,000 14,000
155,000 101,000
Dividends paid during the year – Rs. 10,000/-
What was the net cash flow from financing activities during 2007? What was the net cash from investing activities during 2007?
78. Kumar owns a small trucking operation. His accountant presented the following financial statements for 2006 and 2007.Income Statement Balance Sheet
2007 2006 31.12.07 31.12.06
Revenues 191,400 182,600 Cash 22,000 4,400
Depreciation 26,400 26,400 Accounts Receivable 8,800 26,400
Fuel 77,000 46,200 Fixed Assets 198,000 224,400
Drivers' Salaries 44,000 35,200 Total Assets 228,800 255,200
Taxes & licenses 22,000 17,600 Accounts Payable 30,800 22,000
Repairs 30,800 19,800 Accrued Salaries 8,800 5,500
Miscellaneous 2,200 1,100 Other Accruals 3,300 1,100
Income/(Loss) -11,000 36,300 Long Term Debt 100,100 129,800
Kumar's Capital 85,800 96,800
Total Liabilities 228,800 255,200
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Kumar does not understand how the company can be having Rs. 17,600/- more cash in hand as compared to last year and yet incur a loss of Rs. 11,000/- for this year. Prepare a cash flow statement and give necessary explanations to Kumar.
79. The following are statements for Large Company. Prepare a cash flow statement for 2007.
Balance Sheet Profit & Loss Statement
2007 2006 2007
Cash 22 16 Sales 1,300
Receivables 200 250 Cost of goods sold 880
Inventory 125 95 Gross Profit 420
Prepaid Expenses 18 10 Operating Expenses
Plant 1,019 1,000 General Expenses 240
Accumulated Depreciation -527 -597 Interest 15
857 774 Depreciation 60
Payables 75 50 Income Tax 35
Interest Payable 10 8 350
Income Tax Payable 90 107 Net Income 70
Long term loan 117 77
Share Capital 338 300
Retained Earnings 227 232
857 774
Additional Information for 2007 -
Plant having an original cost of Rs. 330/- was sold for book value Rs. 200/- Dividends paid were Rs. 75/- All payables relate to inventory. All purchases of plant were for cash.
80. The income statement of Telesis Company for the year ended 31.12.2007 is as follows-
Revenues
Commissions Earned 700,000
Rentals 80,000
Total Revenues 780,000
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Expenses
Salaries 300,000
Advertising 150,000
Building Lease 60,000
Supplies used 30,000
Total Expenses 540,000
Income before taxes 240,000
Taxes 30,000
Net Income 210,000
Additional Information-
20% of commission revenues have not been collected in cash All rental revenues were collected in cash Salaries Rs. 10,000/- were not paid in cash Supplies used were purchased & paid for in 2006 All other expenses were paid for in cash.
Determine the net cash flow from operations. Explain the difference between net income and cash flow from operations.
81. Account balances of Parivar Sweet Home as on 1.04.2008 were as follows-
Bills Payable 17,000
Bank Loan 4,000
Paid in Capital 100,000
Cash 10,000
Ovens 12,000
Inventory of food items 15,000
Investments 8,000
Restaurant Furniture 80,000
Transactions during April were –
Paid suppliers on account – Rs. 2,400/- Additional food inventory purchased on account – Rs. 3,500/- Dividends on Investments received – Rs. 500/- Equipment purchased for cash – Rs. 2,000/-
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A soft drink supplier wanted the sweet home to stock it’s brand of drink, so it agreed to sell 10 cartons of soft drinks for Rs 200/-. The regular purchase price of the drink was Rs 250/-. Purchase was made on account.
Complete the balance sheet as on 1.04.2008. Prepare the income, cash flow statements & balance sheet as on 30.04.2008. The owner has asked you for a loan of Rs. 10,000/- to be repaid in one year. The loan is for purchasing additional ovens and equipments. What factors will you consider in deciding whether to make the loan?
82. A statement of cash flows for the first year of operations of Crystal Company is given.
Indirect Method Direct Method
Net Income 3,000 Cash received from customers 37,000
Depreciation 4,000 Cash paid for inventory -20,000
Increase in debtors -7,000 Cash paid for expenses -10,000
Increase in inventory -2,000
Increase in creditors 10,000
Profit on sale of equipment -1,000
Cash flow from operations 7,000 Cash flow from operations 7,000
Purchased equipment -24,000 Purchased equipment -24,000
Sold equipment 5,000 Sold equipment 5,000
Cash flow from investing -19,000 Cash flow from investing -19,000
Took loan 20,000 Took loan 20,000
Issued Shares 10,000 Issued Shares 10,000
Paid dividends -15,000 Paid dividends -15,000
Cash flow from financing 15,000 Cash flow from financing 15,000
Increase in cash 3,000 Increase in cash 3,000
Equipment having book value Rs. 4,000/- (original cost Rs. 5,000/-) was sold.
Prepare a P&L Statement and Balance Sheet. Keeping in mind that this is the first year of operations, do you see anything unusual for such a new
company? Explain.
RATIO ANALYSIS:
83. Alpha Manufacturing Company has drawn up the following Trading and Profit and Loss account for the year ended 31st March, 2011.
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Opening stock 26000 Sales 160000Purchases 80000 Closing stock 38000Wages 24000Manufacturing expenses 16000Gross profit 52000Total 198000 198000Selling and distribution expenses 4000 Gross profit 52000Administrative expenses 22800 Compensation for Acquisition of
land4800
General expenses 1200Value of furniture (lost by fire) 800Net profit 28000Total 56800 56800
You are required to calculate: (i) Gross Profit Ratio (ii) Operating Ratio (iii) Operating Profit Ratio (iv) Net Profit Ratio
84. The following are the summarized Profit and Loss Account for the year ending 31st March, 2012.
Opening stock 10000 Sales 100000Purchases 50000 Closing stock 15000Wages 3000Manufacturing expenses 2000Gross profit 50000Total 115000Financial expenses 3000 Gross profit 50000Administrative expenses 15000Selling expenses 12000
Net profit 20000Total 50000 50000
Calculate (i) Gross Profit Ratio (ii) Operating Ratio (iii) Operating Profit Ratio and (iv) Various Expenses Ratios.
85. The following is the Balance Sheet of X&Co. as on 31st March, 2012.
Liabilities Rs. Assets Rs.Capital 100000 Land and building 80000Profit and loss account 20000 Plant and machinery 30000Long term loan 40000 Stock 15000Creditors 25000 Sundry debtors 15000Bills payable 15000 Bills receivable 12500
Cash in hand and at bank 17500Furniture 20000Preliminary expenses 10000
Total 200000 200000From the above, calculate:
Capital Turnover Ratio (ii) Fixed Assets Turnover Ratio (iii) Working Capital Turnover Ratio (iv) Stock Turnover Ratio (v) Accounts Receivable Turnover Ratio (vi) Accounts Payable Turnover Ratio with additional information as given below:
a) Sales Rs. 1, 00,000 (including credit sales of Rs. 80,000)b) Gross Profit Rs. 50,000c) Average Stock Rs. 12,500d) Debtors and Bills Receivables opening balance Rs. 12,500e) Average credit purchases Rs. 40,000f) Creditors and Bills Payable opening balance Rs. 40,000
86. The following is the Balance Sheet of a limited company on 31st March, 2012
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Liabilities Rs. Assets Rs.Share capital 200000 Land and buildings 140000Profit and loss account
30000 Plant and machinery 350000
General reserve 40000 Stock in trade 20000012% debentures 420000 Sundry debtors 100000Sundry creditors 100000 Bills receivables 10000Bills payable 50000 Cash at bank 40000Total 840000 840000
Calculate (i) Current Ratio (ii) Quick Ratio (iii)Inventory to working capital (iv) debt to equity (v)Proprietary ratio (vi)Capital Gearing Ratio (vii)current assets to Fixed Assets ratio.
87. The following are summarized Profit and Loss Account for the year ending 31st December, 2011 and the Balance Sheet as at that date:
Opening stock 10000 Sales 100000Purchases 55000 Closing stock 15000
Gross profit 50000Total 115000 115000Interest 3000 Gross profit 50000Administrative expenses 15000Selling expenses 12000
Net profit 20000Total 50000 50000
Liabilities Rs. Assets Rs.Share capital 100000 Land and buildings 50000Profit and loss account
20000 Plant and machinery 30000
General reserve Stock in trade 1500012% debentures Sundry debtors 15000Sundry creditors 25000 Bills receivables 12500Bills payable 15000 Cash at bank 17500
Furniture 20000Total 160000 160000
Additional Information:
1. Average Debtors Rs. 12,5002. Average Credit Purchases Rs. 40,000
You are required to calculate (i) Stock Turnover Ratio (ii) Debtors Turnover Ratio (iii) Creditors Turnover Ratio (iv) Sales to Working Capital Ratio (v) Sales to Fixed Assets Ratio (vi) Sales to Capital Employed (vii)Current Ratio (viii)Acid Test Ratio (ix) Gross Profit Ratio (x) Net Profit Ratio (xi) Operating Ratio.
88. Mr. Desai intends to supply goods to A limited and B limited. The relevant financial dta relating to the companies for the year ended 31st March, 2012 are as under:
A limited
B limited
Terms of payment 3 months 3 monthsStock 800000 100000Debtors 170000 140000Cash 30000 60000Trade overdraft 300000 160000
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Bank overdraft 40000 30000Creditors for expenses 60000 10000Total purchases 930000 660000Cash purchases 30000 20000
Advise with reasons, as to which of the companies he should prefer to deal with.
89. The following are the actual ratios of Gypsy limited and the corresponding standards:
Ratio Actual Industry averageCurrent ratio 6:1 4:1Liquid rario 2:1 1:50:1Gross profit Margin 22% 22%Operating profit Margin 16% 14%Net Profit Margin 8% 10%Creditor Payment Period 30 days 40 daysInventory turnover 8 times 10 timesDebtors collection period 45 days 56 daysFixed assets turnover ratio 3 times 4 timesDebt / Equity ratio 2.50:1 1.75:1Return on shareholders’ net worth
6% 10%
Compare the financial performance and comment.
90. From the following information prepare the Balance Sheet of Mr. Ramesh as on 31st March, 2012. (Make your own assumptions - if any need)
Fixed Assets Rs.6, 00,000Working Capital Rs.4, 00,000
Current Ratio 2Fixed assets to Turnover 4
Gross Profit 25%Debtors velocity 1.5 monthsCreditors velocity 2 monthsStock velocity 2 monthsNet profit 5% of the turnoverReserve 2/3rd of the Net ProfitsCapital gearing 1:1
91. from the following information, prepare a summarized Balance Sheet as at March 31, 2012.
Stock Velocity 6
Fixed assets turnover ratio 4
Capital turnover ratio 2
Gross profit ratio 20 %
Debt collection period 2 months
Creditors’ payment period 73 days
The Gross profit was Rs. 60,000
Closing stock was Rs.5, 000 in excess of opening stock.
All workings should form part of your answer. Make any assumptions in case of necessity.
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92. The standard ratios for the industry and the ratios of company X are given. Indicate the strength and weaknesses as shown by your analysis.
Ratio Actual Industry averageCurrent ratio 2.67 2.4Debtors turnover ratio 10.00 8.0Stock turnover ratio 3.33 9.80Assets turnover ratio 1.43 2.00Net profit ratio 2.1% 3.3%Net profit on total assets ratio 6.6% 3.0%Net profit on net worth 10.7% 4.8%Total debts to total assets 63.5% 37.7%
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