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) (ii) (iii) (iv) (v) Rahim started business with cash Rs. 20,000 Rahim purchased furniture for cash Rs. 2,000 Rahim paid rent Rs. 200 Rahim purchased goods on credit Rs. 3,000 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, 000 2 Bought furniture for Rs.5, 000 and machinery for Rs.1, 000 3 Purchased goods for Rs. 14,000 6 Sold goods for Rs.8, 000 8 Purchased goods from Malhotra and Company Rs. 11,000

10 Paid mobile bill for the month by cheque Rs.500 11 Bought one computer for Rs.25, 000 from universal computers on credit 15 Sold goods to Keshav Ram for Rs.12, 000 17 Sold goods to Rajesh kumar for Rs.2, 000 for cash 19 Amount withdrawan from bank for personal use Rs.1, 500 20 Withdrew from bank for business use Rs.3, 500 21 Received cash from Keshav Ram Rs.11, 900, discount allowed Rs.100 22 Paid into bank Rs.5, 800 23 Bought 50 shares in XY and Company limited at Rs.60 per share, brokerage Rs.20 25 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.20 28 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 Ramesh 30 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.100 30 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. 5,420 4 Received from Raman cash Rs. 5,150 and allowed him discount Rs.270 15 Raman bought goods Rs.6, 000 28 Received cash from Raman on account Rs.2, 000 2011 October 1 Balance from last month brought forward Rs.2, 000 13 Sold goods to Raman Rs.10, 000 20 Received from Raman cash Rs.3, 960 and allowed him discount Rs. 40 31 Received cash in full settlement of Ramans account Rs.9, 800. 7. Classify the following items (expense/loss, income/gain, asset, liability Prepaid Expenses Advance Income Bad-debts General Reserve Raw Materials consumed Shares of other companies Patents & Trademarks Profit on sale of assets Proposed Dividend Dividends Received Advance Tax paid R&D expenses Depreciation Interest on loan Accrued Packing material Bills Payable Insurance premium paid Outstanding Expenses Outstanding Income Provision for bad-debts Discounts Allowed Raw material in stock Capital Work-in-Progress Reduction in value of investments Loss on sale of investments Dividends Paid Provision for taxes Dividend Tax Administrative charges Cost of goods sold Dividends on investments Accrued Retained Earnings Bills Receivable Repairs & Maintenance charges

8. An analysis of some transactions is given below. Explain the transactions. Owners 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 Ashoks 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 sales Identify 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 Took loan from bank Paid deposit to landlord for shops Purchased goods in cash Purchased good on credit from M/s Super Traders Purchased furniture for shop Paid carriage in cash Paid wages in cheque Sold goods in cash Sold goods on credit to General Stores Paid rent to landlord Part of goods returned back by General Stores Received cash from General Stores Rs. 50,000.00 Rs. 1,50,000.00 Rs. 25,000.00 Rs. 30,000.00 Rs. 75,000.00 Rs. 20,000.00 Rs. 2,000.00 Rs. 5,000.00 Rs. 45,000.00 Rs. 55,000.00 Rs. 3,500.00 Rs. 5,000.00 Rs. 49,500.00

Deposited cash in bank Paid interest on bank loan Re-paid part of bank loan Paid M/s Super Traders for goods Withdrew cash from bank Paid cash for personal expenses Paid advance to M/s Mehta & Sons for supplies Received supplies from M/s Mehta & Sons Defective supplies returned back to M/s Mehta & Sons Paid for electricity bill in cash Telephone bill deducted from bank account

Rs. 75,000.00 Rs. 4,000.00 Rs. 30,000.00 Rs. 60,000.00 Rs. 15,000.00 Rs. 5,000.00 Rs. 50,000.00 Rs. 1,00,000.00 Rs. 10,000.00 Rs. 750.00 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 Plant and machinery Salary payable Wages payable Electricity payable Sundry debtors Bills payable Insurance charges Sundry creditors 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. 2,50,000 50,000 15,000 13,000 2,000 40,000 60,000 1,00,000 1,10,000 Building Closing stock: Raw Material Work-in-Progress Finished Goods Marketable securities Cash in hand Cash from the bank Profit for the year 1,00,000 15,000 10,000 25,000 60,000 25,000 35,000 30,000

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 Building Bank loan Provision for taxation Machinery Cash in hand Sundry creditors 10,00,000 2,00,000 1,50,000 50,000 5,00,000 50,000 1,00,000 Land Debentures capital Profit (current year) Profit (previous year) Bills receivable Sundry debtors 8,00,000 2,00,000 1,50,000 2,50,000 2,00,000 1,50,000

Prepare Balance as per companies Act. 15. The following is the summarized profit and loss account of Shyams Enterprise for five consecutive periods. Complete the same by supplying the missing information. Year Sales Cost of goods sold Gross Profit Administrative expenses Selling and distribution Operating Profit Other Income Net Profit before tax Provision for Corporate tax Profit after tax Retained earnings 1 1000 500 ? 100 150 ? 150 ? 200 ? ? 2 ? 800 700 ? 200 200 ? 300 ? 200 ? 3 3000 ? 1000 300 ? 400 200 ? 300 ? ? 4 ? 2,500 1,500 400 500 ? ? 1000 ? 500 ? 5 5000 3000 ? ? 600 1000 500 ? 750 ? ?

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 Current Assets: Cash Acccounts receivable inventory Prepaid rent and insurance Current assets Property,Plant and Machinery Freehold land Plant and equipment Less:accumulated depreciation Good will 000 750 1,650 2,200 160 4,760 2,100 4,850 3,200 000

1,650 3,700

Total assets Liabilities and owners equity Current liabilities Accounts payable Wages payable Taxes payable Long term loans due within the year Current liabilities Long term loans Owner(s) equity Owner(s) capital Retained earnings Total liabilities and owners equity

12,210

1,350 650 850 600 3,450 5,200 1,000 2,560

3,560 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 April 1 April 1 April 1 April 1 Tr.No 1 2 3 4 Transactions Received cash from Bharat Gupta towards his capital Opened current account with State Bank of India Issued cheque for office rent for April Purchased one scooter from Regent Automibilies on credit, all initial costs including insurance borne by the vendor Amount 150000 135000 2500 31500

April 1

April 2 April 2 April 5 April 8 April 10 April 12 April 16 April 19

6 7 8 9 10 11 12 13

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. on reducing balance. Purchased office furniture for cash Purchased office equipment, paid cheque Purchased 45 units of product X, issued a cheque Sold 10 units of product X, received cheque. Deposited in SBI Cheque issued for advertisement in the local daily delhi times Purchased 75 units of X from ABC &Co. on 15days credit Sold 25 units of X to RIL &Co on credit of one week Sold 5 units of X for cash

7500

8500 11500 45000 12500 2200 75750 31875 6425

April 14 Received cheque from RIL&Co. 23 April 15 Issued cheque to ABC & Co 27 April 16 Purchased 30 units of X from ABC &Co on 15 days credit 28 April 17 Sold 20 units of X to RIL&Co. on credit for one week 28 April 18 Salary paid to the office assistant Sudamma in cash 30 April 19 Issued cheque to Bharat Gupta for his personal use 30 April 20 Cash paid to the office owner for using his telephone during April 30 April 21 Cash paid to Preet Fill Station towards petrol consumed by the scooter during the 30 month Prepare Income Statement and Balance Sheet.

31875 75750 30450 25600 3500 4000 650 550

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 1 4 7 10 13 16 19 22 25 28 31 Item land equipment Bank overdraft Long term investments patents Capital Sales for the year salary Outstanding expenses Commission received Advertising expenses S.No 2 5 8 11 14 17 20 23 26 29 32 Item Building cash Marketable securities furniture copyrights Debenture purchases royality Prepaid expenses Unearned interest Power and fuel S.No 3 6 9 12 15 18 21 24 27 30 33 Item Plant Bank Closing stock of finished goods Goodwill Preliminary expenses Mortgage loan Wages Accounts payable Accrued commission General reserve 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 Owners capital Secured bank loan Bank overdraft Sundry creditors Tax payable Amount 19,00,000 11,50,000 70,000 30,000 2,85,000 Assets Land and building Plant and Machinery furniture investment stock Amount 15,30,000 11,10,000 2,20,000 90,000 95,000

Outstanding expenses

1,50,000

Sundry debtors Bills receivables Cash and bank Pre-paid expenses Marketable securities Preliminary expenses goodwill patents

35,85,000

1,75,000 25,000 80,000 15,000 20,000 40,000 1,10,000 75,000 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 Opening stock Purchases Productive wages Discount Salary Rent Insurance premium Dividend paid Interim dividend paid Sundry debtors Plant and machinery Cash in hand and at bank Loan to managing director Bad debts Total Additional information (adjustments) (i) (ii) (iii) (iv) (v) (vi) Amount 7,500 24,500 5,000 700 750 495 1,705 500 400 3,750 2,900 1,620 325 158 50,303 Particulars Sales Discount Profit and loss a/c (opening balance) Share capital(Face Value Re.1) Sundry creditors General reserve Amount 35,000 500 1,503 10,000 1,750 1,550

50,303

(vii) (viii) (ix) (x) (xi) (xii)

Closing stock was Rs.8,200 crore Insurance premium for 6 months at the rate of Rs.50 crore per annum was pre-paid One month rent Rs.35 crore was due but not paid Provide depreciation on plant and machinery @10% Make provision for doubtful debts @5% and provision for discount on debtors @2% 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 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. 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. Cheques of Rs.5 crore issued but not presented for payment till march 31, 2010 Goods costing Rs.200 crore were destroyed by fire and insurance company admitted the claim for Rs. 175 crore In case of sufficient net profit transfer Rs.2,000 crore to general reserve 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

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 Stock Furniture Discount Loan to director Advertisement Baddebts Commission Purchases Plant and Machinery Rentals Current account Cash Interest on bank loan Preliminary expenses Fixtures Wages Consumbles Freehold land Tools and equipment Goodwill Debtors Bills receivables Dealers aids Transit insurance Trade expenses Delivery van expenses Debenture interest Total Amount 340000 100000 20000 40000 10000 17500 60000 1159500 430000 12500 22500 4000 58000 5000 150000 450000 42000 773000 122500 132500 143500 76500 10500 15000 36000 27000 10000 4267500 Particulars Equity share capital (face value Rs.10 each) 10% debentures (as on April 1,2009) (Secured) Bank loan (Unsecured) Bills payable Creditors Sales Rent received Profit and loss account Provision for depreciation on machinery Amount 1250000 250000 3,22,500 62500 78000 2134000 28000 69500 73000

4267500

Additional information: 1. 2. 3. 4. 5. Closing stock was Rs.4,11,500 Wages for the month of March Rs.65,000 was due but not paid. Make provision for tax @20% of EBT Transfer Rs.50,000 to reserve account 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 Cash in hand Cash at bank Bills receivables Amount 1900 6300 2000 Particulars Share capital 9.00% debentures Accounts payable Amount 45000 15000 14500

Investments Sundry deposits Advances Debtors Land and building Furniture Motor car Closing stock Establishment expenses Repairs and renewals Motor car expenses Travelling expenses Printing and stationery Telephone and internet Interest on debentures Sales commission Sales promotion Managing directors remuneration Directors fee Total

500 200 4250 37500 52500 2250 12500 47500 17600 1,300 2,100 800 450 600 1000 1600 1750 1,800 1000 197400

Profit and loss account Secured loan Gross profit Suspense account Outstanding expenses Sale of furniture Bank overdraft Miscellaneous expenses

1000 25000 87500 1500 6000 150 1550 200

197400

The following additional information is also available: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Share capital is represented by Rs.9,000 crore equity shares of Rs.5 each fully called and paid Profit and loss account balance of previous year is after charging short provision for tax of last year of Rs.2500 crore Bank statement on April 5, 2010 shows interest on loan debited by bank on march 31, 2010 of Rs.355 crore Bank statement shows a wrong debit by bank of Rs.1500 crore on march 26,2010 Sales of furniture represents sale of an old furniture having original cost Rs.400 crore and accumulated depreciation Rs.200 crore Cost of land Rs.15000 crore is included in land and building Sales promotion charges include material on hand Rs.75 crore 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 year An amount of Rs.1000 crore and Rs.600 crore debited to purchase and wages respectively belong to furniture making during the year. Charge depreciation building @2.5%, furniture 5% motor car 20% 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. Bills discounting not matured by the end of the year Rs.750 crore. Make a provision for income tax Rs.32,500 crore Make the following appropriation (a) Transfer Rs.10,000 crore to general reserve (b) Dividend on paid-up equity @12%

12. 13. 14.

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 Current assets Noncurrent assets Total assets Current liabilities Year 1 113624 ? 524600 56142 Year 2 ? 198014 ? 40220 Year 3 85124 162011 ? ? Year 4 ? 151021 220111 ?

10

Noncurrent liabilities Paid-in-capital Retained earnings Total liabilities and owners equity

? 214155 13785 524600

? 173295 (3644) 288456

60100 170000 1452 ?

30222 170000 2350 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 4s sales.) Particulars Sales Cost of goods sold Gross margin Other expenses Profit before taxes Tax expenses Net income Year 1 12011 3011 ? 6201 2799 ? 1679 Year 2 ? 2992 8976 6429 ? 1019 1528 Year 3 11545 ? 8659 ? 2363 945 1418 Year 4 10000 ? ? ? ? ? ?

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 31st 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 its assets? PQR Ltd has total assets Rs. 94,000/- and liabilities Rs. 37,500/-. What is the amount of owners equity? Hypothetical Ltd started June 2008 with assets of Rs. 150,000/- and liabilities of Rs. 90,000/-. During June owners 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.

11

30. Selected balance sheet items of Microtech Ltd are given below. Calculate the missing items 2005 Fixed Assets Current Assets TOTAL Share Capital Retained Earnings Long Term Liabilities Current Liabilities TOTAL ?? 113,624 524,600 214,155 13,785 ?? 56,142 524,600 2006 198,014 ?? ?? 173,295 ?? ?? 40,220 288,456 2007 162,011 85,124 ?? 170,000 1,452 60,100 ?? ?? 2008 151,021 ?? 220,111 170,000 2,350 30,222 ?? ??

31. Selected Balance Sheet items of Tata Motors Ltd are shown. Complete the missing items.

2007 SOURCES OF FUNDS SHAREHOLDERS FUNDS LOAN FUNDS OTHER LIABILITIES TOTAL FUNDS EMPLOYED APPLICATION OF FUNDS FIXED ASSETS INVESTMENTS CURRENT ASSETS, LOANS AND ADVANCES CURRENT LIABILITIES AND PROVISIONS NET CURRENT ASSETS MISCELLANEOUS EXPENDITURE TOTAL ASSETS 6,394.58 ?? ?? ?? 2,784.05 10.09 6,869.75 4,009.14 ?? 11,665.72

2006

2005

2004

5,537.07 ?? 622.54 ??

?? 2,495.42 565.28 7,172.09

3,593.60 1,259.77 514.15 ??

4,521.23 ?? 9,487.81 ?? 2,545.95 14.12 9,096.45

?? 2,912.06 7,146.19 6,600.83 ?? 18.16

3,247.80 3,056.77 3,695.70 ?? 959.24 ??

12

32. Selected P&L items of Astrotech Ltd. are given below. Complete missing items.

2005 Sales Cost of Goods Sold Gross Profit Other Expenses Profit before Taxes Taxes Profit after Taxes 12,011 3,011 ?? 6,201 2,799 ?? 1,679

2006 ?? 2,992 8,976 6,429 ?? 1,019 1,528

2007 11,545 ?? 8,659 ?? 2,363 945 1,418

2008 10,000 ?? ?? ?? ?? ?? ??

(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 Sales Other Income Total Expenses Profit before tax Taxes Profit after tax 1,701.02 498.90 30,892.88 30,739.95

2003-04 33,920.19

2004-05

2005-06 52,476.57

2006-07

537.55

329.74

708.03 72,389.79

31,241.79

38,811.23 3,550.10

48,283.31 6,045.06 1,249.80

928.80 1,935.80 2,714.10

4,412.86

34. Prepare the Balance Sheet of Great Ltd. as on 30th June using following balancesDescription Accounts Payable Accounts Receivable Accrued Expenses Accumulated Depreciation Rs. 241,000 505,000 107,000 Description Cash Equipment (at cost) Provision for Tax Inventories Rs. 89,000 761,000 125,000 513,000

13

-Buildings -Equipment Bonds Payable Building (at cost) Share Capital

538,000 386,000 700,000 1,120,000 1,000,000

Investments Land Marketable Securities Notes Payable Retained Earnings

320,000 230,000 379,000 200,000 ??

35. Account Balances as on 31.03.2008 of Udaya Industries Pvt. Ltd are given below. Capital Loans Sales Purchases Sales Returns Purchase Returns Interest Furniture Expenses 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 Ending Inventory Purchases Rs. 27,000 Rs. 31,000 Rs. 78,000 100 700 3190 2680 157 70 70 80 230 Outstanding Expenses Salaries Outstanding Salaries Advance Tax Debtors Creditors Cash Prepaid expenses Prepaid salaries 10 270 20 100 1583 1320 205 20 15

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. Particulars 2005 Qty Rate 2006 Qty Rate 2007 Qty Rate

14

Opening Balance Purchases Q1 Q2 Q3 Q4 Sales Q1 Q2 Q3 Q4

1,840

20.00

1,020

1,040

600 800 400 200

20.25 21.00 21.25 21.50

700 700 700 1,000

21.50 21.50 22.00 22.25

1,000 700 700 700

22.50 22.75 23.00 23.50

800 980 1,040 0

34.00 34.10 33.75

750 620 980 730

34.50 35.00 35.10 34.75

900 800 550 700

34.90 34.25 33.75 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 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

15

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 months 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 Accounts Payable Accrued Liabilities Short term loans Long Term loans Capital lease Income Tax Liabilities Share Capital Retained Earnings 15,000 11,000 137,000 250,000 12,000 50,000 105,000 62,000 642,000 Y Ltd 120,000 63,000 350,000 450,000 13,000 78,000 600,000 196,000 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 Intangible Assets Property & equipment Long term assets 56,000 450,000 20,000 B Ltd 568,000 950,000 45,000

16

Long Term Investments Short Term Investments Inventory Accounts Receivable Cash

50,000 14,000 120,000 38,000 1,000 749,000

242,000 75,000 200,000 160,000 2,000 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 Equity Long Term Loan Short Term Loan Creditors Salary Outstanding Rs. 2,140.00 1,540.00 920.00 345.00 15.00 Assets Land & Building Plant & Machinery Furniture & Fittings Motor Vehicles Inventory Debtors Cash & Bank 4,960.00 Summary of transactions for Apr-Jun08 are given below. Rs-laks Apr'08 Credit Purchases Credit Sales Cash Expenses Cash received from customers Salary for Mar'08 paid Cash paid to suppliers 175 200 15 160 15 150 Rs. 1,234.00 2,350.00 350.00 450.00 160.00 250.00 166.00 4,960.00

17

May'08 Salary for Apr'08 paid Cash purchases Cash Sales Credit Purchases Credit Sales Cash Expenses Jun'08 Cash Expenses Salary for May'08 paid Depreciation on Building Plant & Machinery Furniture Motor Vehicles Cash Sales Cash received from customers Cash paid to suppliers Credit Sales 60 235 35 90 70 80 150 100 25 20 20 55 50 250 75 25

Additional InformationGoods lying at the end of Jun08 were worth Rs. 170 lakhs. Salary for Jun08 paid in Jul08 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 Equity Capital General Reserve 10% Preference Shares 1,000 2,000 500 Telephone Electricity Selling Expenses Rs-laks 30 40 50

18

10% Loans Sales Sales Tax Excise Duty Opening Stock Purchases Salaries Power & Fuel Repairs & Maintenance Salaries Advertisement Rent

2,000 4,400 200 400 200 1,200 800 70 50 400 60 40

Audit fees Legal Expenses Income from Investments Loss on sale of fixed assets Interest Accumulated Depreciation Fixed Assets Debtors Creditors Investments Cash & Bank Advance Tax

10 30 15 20 200 500 5,000 600 200 1,000 15 200

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 firms 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 Advertising Expenses Retained Earnings (1/1/07) Cost of good Sold Delivery Expenses 2,500 50,000 40,000 6,000 Interest Repairs & Maintenance Sales Salaries 200 2,500 84,000 5,000

19

Depreciation Insurance

5,000 1,000

Supplies expenses Income tax rate

750 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 owners equity on 31.12.2007? At what mark-up are the goods being sold currently? What will the companys 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 1 st 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 1 st April 2008. Additional machinery was acquired for Rs. 40,000 on 30th September, 2009 and for Rs.25, 000 on 1 st April, 2011. Certain machinery, which was purchased for Rs. 40,000 on 30th September, 2009, was sold for Rs.34, 000 on 30th 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 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.

20

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) (ii) (iii) (iv) Required: (b) (i) (ii) (iii) (iv) (v) Determine the rate of depreciation as per WDV Determine the annual depreciation and accumulated depreciation for all the years as per WDV Show the disclosure of machine in the balance sheet for all the years State the accounting policy on depreciation of machine. Higher Company disposed assets in 2006 particulars are: Purchase Original Disposal Disposal Useful Date 1/3/1998 1/8/2005 Cost 70,300 96,000 Date 1/6/2006 1/11/2006 Proceeds 14,300 63,000 Life 10 5 Determine the rate of depreciation as per SLM. Determine the annual depreciation and accumulated depreciation for all the years as per SLM. Show the disclosure of machine in the balance sheet for all the years. State the accounting policy on depreciation of machine.

Method of Deprn SLM WDV-20%

For assets purchased before July 1st full depreciation for the year.

21

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. 60. Adarsh Company purchased and issued the material in the following order: Date Purchase/sale Units Unit cost January 1 Purchase 300 Rs. 3.00 January 4 Purchase 600 Rs.4.00 January 6 Issue 500 January 10 Purchase 700 Rs.4.00 January 15 Issue 800 January 20 Purchase 300 Rs.5.00 January 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.

22

61. The following records have been extracted from the stores ledger of DXL limited Date Purchase/sale Units Unit cost 02/01/07 Purchase 10,000 100 21/01/07 Purchase 7,000 95 31/01/07 Purchase 2,200 96 10/02/07 Purchase 800 100 15/03/07 Purchase 6,200 101 15/01/07 Issue 8500 28/01/07 Issue 3,500 21/02/07 Issue 7,000 02/03/07 Issue 800 29/03/07 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 Wages Gross profit Total Salaries Rent Depreciation on plant Loss on Sale of Furniture Good will written off Net Profit Total 20,000 5,000 5,000 30,000 1,000 1,000 1,000 500 1,000 5,500 10,000 Sales 30,000

Gross profit Profit on sale of building: Book value: Rs. 10,000 Sold for: Rs. 15,000

30,000 5,000

5,000

10,000

63. Compute cash from operating activities from the following figures. (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 31 st December, 2010 and 2011 are as follows. Item Sundry debtors Provision for doubtful debts Bills receivables Bills payable Sundry creditors Inventories Short-term investments Outstanding expenses Prepaid expenses Accrued income Income received in advance 31st December 2010 10,000 1,000 4,000 5,000 8,000 5,000 10,000 1,000 2,000 3,000 2,000 31st December 2011 12,000 1,200 3,000 6,000 9,000 8,000 12,000 1,500 1,000 4,000 1,000

23

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 Rent Depreciation loss on sale of plant Goodwill written off Proposed dividends Provision for taxation Net profit Total 5000 1000 2000 1000 4000 5000 5000 10000 33000 Gross profit Profit on sale of land Income tax refund 25,000 5000 3000

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 Share capital Profit and loss account General reserve 12% Bonds Sundry creditors Outstanding expenses Total 2010 1,00,000 50,000 30,000 50,000 30,000 10,000 2,70,000 2011 1,50,000 80,000 40,000 60,000 40,000 15,000 3,85,000 Assets Fixed assets Good will Inventories Debtors Bills Receivables Bank 2010 1,00,000 50,000 50,000 50,000 10,000 10,000 2,70,000 2011 1,50,000 40,000 80,000 80,000 20,000 15,000 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 Share capital Secured loans Creditors Tax payable Profit and loss account Total Profit and loss account For the year ending 31st March, 2011 Opening inventory Purchases Gross profit total General expenses Depreciation Taxes Net profit Total Dividend 15000 98000 27000 140000 11000 8000 4000 4000 27000 1000 Closing stock Sales 40000 100000 140000 27000 2010 70000 14000 1000 7000 92000 2011 70000 40000 39000 3000 10000 162000 Assets Plant and machinery Inventory Debtors Cash Prepaid expenses 2010 50000 15000 5000 20000 2000 92000 2011 91000 40000 20000 7000 4000 162000

Gross profit

Balance b/f

27000 7000

24

Balance c/f 10000 Total 11000 67. The following details are available from a company

Net profit b/d

4000 11000

Balance Sheet Liabilities Share capital Debentures Reserve for doubtful debts Trade creditors Profit and Loss account Total In addition, you are given: a) b) c) d) 2010 70000 12000 700 10360 10040 103100 2011 74000 6000 800 11840 10560 103200 Assets Cash Debtors Stock Land Good will 2010 9000 14900 49200 20000 10000 103100 2011 7800 17700 42700 30000 5000 103200

Dividend paid total Rs. 3,500 Land was purchased for Rs. 10,000 Amount provided for amortization of good will Rs. 5,000 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 Share capital Profit and loss account 9% debentures Creditors 2010 350000 50400 60000 51600 2011 370000 52800 30000 59200 Assets Land Stocks Good will Cash and bank Temporary investments Debtors 2010 100000 246000 50000 42000 3000 71000 512000 2011 150000 213500 25000 35000 4000 84500 512000

Total 512000 Other particulars provided to you are: a) b)

512000

Dividends declared and paid during the year Rs. 17,500 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 Stock Debtors Creditors Bills receivables Outstanding expenses Bills payable Prepaid expenses 31st December 2010 10000 15000 5000 5000 3000 4000 1000 31st December 2011 12000 20000 7500 8000 5000 2000 500

70. Classify the following items into operating, investing & financing cash flows. Shares Issued Buy back of shares

25

Loan installment paid Debentures redeemed Dividends paid Interest/Dividend received Fixed Assets purchased Taxes paid Depreciation Decrease in current assets Decrease in current liabilities

Interest on loan paid Debentures converted into shares Shares in another company purchased Cash subsidy received Loss on sale of fixed assets Provision for expenses Expenses due Increase 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 73. Prepare a cash flow statement for the year ended Dec07 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/Transaction of a consultancy firm during Jan-Mar08 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

74.

26

Prepare the financial statements for the 3 months. Explain the relationship between income statement & cash flow statement. 75. Feel-Good Ltd started operations in Sep07. Transactions till Mar08 were Owners 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 April08. 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 Mar08.

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 Cash Other Current Assets Equipment Accumulated Depreciation Land 12,000 25,000 108,000 -20,000 30,000 155,000 Current Liabilities Long Term Debt Equity Shares Retained Earnings 26,000 50,000 50,000 29,000 155,000 Dividends paid during the year Rs. 10,000/-

2006 15,000 22,000 50,000 -16,000 30,000 101,000 22,000 25,000 40,000 14,000 101,000

27

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 Revenues Depreciation Fuel Drivers' Salaries Taxes & licenses Repairs Miscellaneous Income/(Loss) 191,400 26,400 77,000 44,000 22,000 30,800 2,200 -11,000 2006 182,600 26,400 46,200 35,200 17,600 19,800 1,100 36,300 Cash Accounts Receivable Fixed Assets Total Assets Accounts Payable Accrued Salaries Other Accruals Long Term Debt Kumar's Capital Total Liabilities 31.12.07 22,000 8,800 198,000 228,800 30,800 8,800 3,300 100,100 85,800 228,800 31.12.06 4,400 26,400 224,400 255,200 22,000 5,500 1,100 129,800 96,800 255,200

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 2007 Cash Receivables Inventory Prepaid Expenses Plant Accumulated Depreciation 22 200 125 18 1,019 -527 857 2006 16 250 95 10 1,000 -597 774 Sales Cost of goods sold Gross Profit Operating Expenses General Expenses Interest Depreciation 240 15 60 Profit & Loss Statement 2007 1,300 880 420

28

Payables Interest Payable Income Tax Payable Long term loan Share Capital Retained Earnings

75 10 90 117 338 227 857

50 8 107 77 300 232 774

Income Tax

35 350

Net Income

70

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 followsRevenues Commissions Earned Rentals Total Revenues Expenses Salaries Advertising Building Lease Supplies used Total Expenses Income before taxes Taxes Net Income 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 300,000 150,000 60,000 30,000 540,000 240,000 30,000 210,000 700,000 80,000 780,000

29

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 followsBills Payable Bank Loan Paid in Capital Cash Ovens Inventory of food items Investments Restaurant Furniture 17,000 4,000 100,000 10,000 12,000 15,000 8,000 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/A soft drink supplier wanted the sweet home to stock its 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 Net Income Depreciation Increase in debtors Increase in inventory Increase in creditors Profit on sale of equipment 3,000 4,000 -7,000 -2,000 10,000 -1,000

Direct Method Cash received from customers Cash paid for inventory Cash paid for expenses 37,000 -20,000 -10,000

30

Cash flow from operations Purchased equipment Sold equipment Cash flow from investing Took loan Issued Shares Paid dividends Cash flow from financing Increase in cash

7,000 -24,000 5,000 -19,000 20,000 10,000 -15,000 15,000 3,000

Cash flow from operations Purchased equipment Sold equipment Cash flow from investing Took loan Issued Shares Paid dividends Cash flow from financing Increase in cash

7,000 -24,000 5,000 -19,000 20,000 10,000 -15,000 15,000 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. Opening stock Purchases Wages Manufacturing expenses Gross profit Total Selling and distribution expenses Administrative expenses General expenses Value of furniture (lost by fire) Net profit Total You are required to calculate: (i) Gross Profit Ratio 26000 80000 24000 16000 52000 198000 4000 22800 1200 800 28000 56800 Ratio (ii) Sales Closing stock 160000 38000

Gross profit Compensation for Acquisition of land

198000 52000 4800

56800 Operating Ratio (iii) Operating Profit Ratio (iv) Net Profit

84. The following are the summarized Profit and Loss Account for the year ending 31st March, 2012. Opening stock Purchases Wages Manufacturing expenses Gross profit Total Financial expenses 10000 50000 3000 2000 50000 115000 3000 Sales Closing stock 100000 15000

Gross profit

50000

31

Administrative expenses Selling expenses

15000 12000

Net profit 20000 Total 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 Capital Profit and loss account Long term loan Creditors Bills payable Rs. 100000 20000 40000 25000 15000 Assets Land and building Plant and machinery Stock Sundry debtors Bills receivable Cash in hand and at bank Furniture Preliminary expenses Rs. 80000 30000 15000 15000 12500 17500 20000 10000 200000

Total From the above, calculate:

200000

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) b) c) d) e) f) Sales Rs. 1, 00,000 (including credit sales of Rs. 80,000) Gross Profit Rs. 50,000 Average Stock Rs. 12,500 Debtors and Bills Receivables opening balance Rs. 12,500 Average credit purchases Rs. 40,000 Creditors and Bills Payable opening balance Rs. 40,000

86. The following is the Balance Sheet of a limited company on 31st March, 2012 Liabilities Rs. Assets Share capital 200000 Land and buildings Profit and loss account 30000 Plant and machinery General reserve 40000 Stock in trade 12% debentures 420000 Sundry debtors Sundry creditors 100000 Bills receivables Bills payable 50000 Cash at bank Total 840000 Calculate (i) Current Ratio (ii) Quick Ratio (iii)Inventory to working capital (iv) (vi)Capital Gearing Ratio (vii)current assets to Fixed Assets ratio. Rs. 140000 350000 200000 100000 10000 40000 840000 debt to equity (v)Proprietary 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 Purchases 10000 55000 Sales Closing stock 100000 15000

Gross profit Total Interest Administrative expenses Selling expenses

50000 115000 3000 15000 12000

Gross profit

115000 50000

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Net profit Total

20000 50000

50000

Liabilities Share capital Profit and loss account General reserve 12% debentures Sundry creditors Bills payable Total Additional Information: 1. 2. Average Debtors Rs. 12,500 Average Credit Purchases Rs. 40,000

Rs. 100000 20000

25000 15000 160000

Assets Land and buildings Plant and machinery Stock in trade Sundry debtors Bills receivables Cash at bank Furniture

Rs. 50000 30000 15000 15000 12500 17500 20000 160000

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 months Stock 800000 100000 Debtors 170000 140000 Cash 30000 60000 Trade overdraft 300000 160000 Bank overdraft 40000 30000 Creditors for expenses 60000 10000 Total purchases 930000 660000 Cash 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 Current ratio Liquid rario Gross profit Margin Operating profit Margin Net Profit Margin Creditor Payment Period Inventory turnover Debtors collection period Fixed assets turnover ratio Debt / Equity ratio Return on shareholders net worth Compare the financial performance and comment. Actual 6:1 2:1 22% 16% 8% 30 days 8 times 45 days 3 times 2.50:1 6% Industry average 4:1 1:50:1 22% 14% 10% 40 days 10 times 56 days 4 times 1.75:1 10%

90. From the following information prepare the Balance Sheet of Mr. Ramesh as on 31 st March, 2012. (Make your own assumptions - if any need) Fixed Assets Working Capital Rs.6, 00,000 Rs.4, 00,000

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Current Ratio Fixed assets to Turnover

2 4

Gross Profit 25% Debtors velocity 1.5 months Creditors velocity 2 months Stock velocity 2 months Net profit 5% of the turnover Reserve 2/3rd of the Net Profits Capital gearing 1:1 91. from the following information, prepare a summarized Balance Sheet as at March 31, 2012. Stock Velocity Fixed assets turnover ratio Capital turnover ratio Gross profit ratio Debt collection period Creditors payment period The Gross profit was 6 4 2 20 % 2 months 73 days 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. 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 Current ratio Debtors turnover ratio Stock turnover ratio Assets turnover ratio Net profit ratio Net profit on total assets ratio Net profit on net worth Total debts to total assets Actual 2.67 10.00 3.33 1.43 2.1% 6.6% 10.7% 63.5% Industry average 2.4 8.0 9.80 2.00 3.3% 3.0% 4.8% 37.7%

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