Arid University Rawalpindi

ANALYSIS OF FINANCIAL STATEMENT

Very Imp: This model is given only for general understanding, Paper will
not be 100% based on this format. Basic reason for distributing this paper,
is to show the type of MCQs in finance.

DATA 1:
Balance Sheet ,
Silicon
As on December 31, 2006 Proton Inc. Inc.
Current Assets 56,000 42,000
Fixed Assets 210,000 140,000
Investment in Silicon Inc. 250,000 -
Investment in Govt Securities 175,000 90,000
691,000 272,000

6% Preferred Stocks, $ 10 par,

Callable at 13, Convertible each into 200,000 -
2 common Stock
Common Stocks, $5 Par 200,000 120,000
Premium on Ordinary Shares 75,000 30,000
General Reserves 46,000 -
Retained Earning 62,000 48,500
10% Debentures, Convertible into
100,000 -
15,000 common Stocks
Account Payable 8,000 73,500
691,000 272,000
Tax rate for both companies is 40%.

PROBLEM 1: Use DATA 1 and answer the questions (Show proper working for each
part)

Proton Inc. has acquired 16,800 share of Silicon Inc. on Jan 01, 2006, when the
retained earnings of Silicon Inc. were $ 24,000. Accounts Receivable of Proton Inc.
includes Rs 4,000 receivable from Silicon Inc. also.
1) Good will in consolidated balance sheet would be
a) b) c) d)
128,200 86,000 145,000 None
2) Consolidated Retained Earnings after consolidation would be
a) b) c) d)
70,100 79,150 86,500 None
3) Minority interest in consolidated balance sheet would be
a) b) c) d)
59,550 59,000 60,550 None
4) Total assets in consolidated balance sheet would be
 a) b) c) d)
837,200 847,200 827,200 None
5) Account Payable in consolidated balance sheet would be
a) b) c) d)
81,500 75,500 77,500 None

PROBLEM 2 :
(15)

PROBLEM 3 : Use DATA 1 and answer the questions (Show proper working for
each part)

Proton Inc. earnings during the year amounted to 48,000 after tax. Pronton Inc. has
paid dividend @ 10% to common Stock and subscribe rates to Preferred stocks.
Silicon Inc. has paid no dividend at all.
1. Total Dividend Paid to common Stock and Preferred stocks is?
a) b) c) d)
54,000 40,000 32,000 None
2. Earning available to Common Stock holders of Proton Inc. is
a) b) c) d)
36,000 32,000 16,000 None
3. Average issuance price for Common Stock holders of Proton Inc. is
a) b) c) d)
6.875 6.375 6.400 None
4. Basic EPS for Common Stock holders of Proton Inc is
a) b) c) 1.2 d)
0.90 1.00 None
5. Approximate Net Income earned by Silicon Inc. before tax is
a) b) c) d)
40,833 24,500 48,500 None

PROBLEM 4 : Use DATA 1 and answer the questions (Show proper working for
each part)

1. The number of common stock in proton Inc., in case of dilution, would be

a) b) c) d)
95,000 80,000 40,000 None
2. Earning available to Common Stock holders of Proton Inc., in case of dilution,
would be
a) b) c) d)
54,000 50,000 40,000 None
3. Diluted EPS for Common Stock holders of Proton Inc would be
a) b) c) d)
0.57 0.47 0.67 None
4. Interest Paid to debentures is
a) b) c) d)
10,000 15,000 20,000 None
5. Book value of Proton Inc. common stock is
 a) b) c) d)
8.075 10.090 7.235 None
6. The return on fixed assets for Pronton Inc is
a) 10.05% b) 12.45% c) 9.35% d) 14.35%

PROBLEM 5:
1. Explain the limitation of financial statements?
2. Explain the criteria for identifying any lease as capital lease?
3. Define contingencies and commitment? Provide two examples for each.
4. Explain the difference between spin off and split off?
5. Explain the difference between contributed capital and treasury stock?

PROBLEM 5:
Some problem for Residual Income model
PROBLEM 6:
Comparative income statements and balance sheets for Coca-Cola are shown below ($ millions)

Income Statement Year 2 Year 1

Revenues
Net Sales $ 20,092 19,889
Cost of Sales 6,044 6,204
Gross Profit 14,048 13,685
Selling, general, and administrative 7,893 9,221
Deprication and amortization expense 803 773
Interest expense (revenue) (308) 292
Income Before tax 5,660 3,399
Income tax expense 1,691 1,222
Net Income 3,969 2,177
outstanding shares 3,491 3,481

Year 2 Year 1
Balance sheet
Cash $ 1,934 1,892
Accounts receivable 1,882 1,757
Inventories 1,055 1,066
other current assets 2,300 1,905
Total Current Assets $ 7,171 6,620

Plant & equipment, at cost 7,105 6,614

Accumulated Deprication 2,652 2,446
Net property plant and equipment 4,453 4,168
Other long term assets 10,793 10,046
Total Assets $ 22,417 20,834

Liabilities and Equity

Account Payable $ 3,679 3,905

Short term debt & Current maturities on long term debt 3,899 4,816
Income tax liabilities 851 600
Total current liabilities $ 8,429 9,321

Deferred income taxes & other liabilities 1,403 1,362

Long term debt 1,219 835
Total other liabilities $ 2,622 2,197

Shareholder's Equity
Common Stock 873 870
Capital surplus 3,520 3,196
Retain Earnings 20,655 18,543
Treasury stock 13,682 13,293
Total Shareholders' Equity 11,366 9,316
Total Liabilities and shareholders' equity $ 22,417 20,834
Required:

Use the following ratios to prepare a projected income statement, balance sheet, and statement of cash
flows for year 3

Sales growth 1.02%

Gross profit margin 69.92%
Selling, general and admin exp/ sales 39.28%
Deperication exp / Prior -yrear PPE gross 12.14%
Interest exp / Prior - year long term debt 5.45%
Income tax exp / pretax income 29.88%
Account receivables turnover 10.68
Inventory turnover 5.73
Account payables turnover 1.64
Taxes payable / Tax exp 50.33%
Total assets / Stockholders' equity (Financial leverage) 2.06
Dividend per share 1.37
Capital expenditures / Sales 5.91%

On the basis of above data, compute the following for Year 3: (it will also be MCQ based)
1. Depreciation Expense
2. Tax Expenses
3. A/R
4. Plant & equipment
5. RE
6. Total Assets
7. Some other item as well.