FAWCM Practice Questions

Question 1
Prepare a Common Size Profit and Loss Account from the following information
and present you analysis.
For P&L Account Base Number for % calculation will be Sales
For Balance Sheet base number for % calculation will be Total Assets
Profit and Loss Account of Two Companies competing in the same sector
Particulars
Anand
Kishore
Particulars
Anand
Kishore
Limited
Limited
Limited
Limited
To Cost of Goods sold
800000
1200000
By Sales
2000000
2500000
To Office and
Administrative Expenses
400000
650000
To Selling and
Distribution Expenses
250000
450000
To Net Profit
550000
200000
2000000
2500000
2000000
2500000
Solution
Particulars
To Cost of
Goods sold
To Office and
Administrativ
e Expenses
To Selling
and
Distribution
Expenses
To Net Profit

Anand
Limite
d

Kishor
e
Limite
d

40%

48%

20%

26%

Particular
s

By Sales
13%

18%

28%
100%

8%
100%

Anand
Limited

Kishore
Limited

100%

100%

100%

100%

Comments
There is a significant difference between the profitability of the two
companies, as Anand Limited is earning 28% margin, whereas Kishore
Limited is earning only 8%
Cost of Goods of Anand Limited is also relatively lower compared to
Kishore Limited.
Other costs like Administration and Selling Expenses are also significantly
lower.
Based on the ratios, it seems that Kishore Limiteds business is
inefficiently managed and needs substantial efforts to improve the
profitability in comparison to the competitor.

Balance Sheet of Two Companies competing in the same sector

Liabilities
Anand
Kishore
Assets
Anand
Kishore
Equity
Fixed Assets
Equity Capital
10,00,000 10,00,000 Land
8,00,000
3,20,000
Reserves
5,00,000
3,50,000
5,00,000
3,00,000 Buildings
Debt
Plant
5,00,000
2,00,000
Long Term Loan/Debt
22,00,000 11,50,000 Furniture
6,00,000
1,00,000
Current Liabilities
Current Assets
Bills Payable
90,000
50,000
90,000
90,000 Cash
Tax Payable
2,00,000
9,00,000
8,50,000
2,20,000 Debtors
Creditors
3,10,000
11,00,000
9,00,000
2,00,000 Stock

4300000

2960000

43,00,000

29,60,000

Solution
Convert the Balance Sheets into % format. Consider the Total of Assets or Total of
Liabilities as 100%. Partial solution is as under. Please complete the same for
practice.
Liabilities
Anand
Kishore
Assets
Anand
Kishore
Equity
Please
Please Fixed Assets
Please
Equity Capital
compute
compute Land
18.6%
compute
Reserves
Buildings
8.1%
Debt
Plant
11.6%
Long Term Loan/Debt
Furniture
14%
Current Liabilities
Current Assets
Bills Payable
Cash
1.2%
Tax Payable
Debtors
20.9%
Creditors
Stock
25.6%
100
100
100
Comments
Comment on the Capital Structure as to How both the companies is
funding with own capital or outside capital etc.
Compare which company has Current assets more than Fixed assets

100

Question 2
Ratio Analysis
Calculate(Any Seven) the ratios based on the following Profit and Loss Account and Balance
Sheet
1.Current Ratio 2.Quick Ratio 3.Operating Expenses Ratio 4.Operating Profit Ratio 5.Stock/Inventory
Turnover Ratio 6.Debtors/Receivables Turnover Ratio & Average Collection Period (Number of days
of sales) 7.Creditors Turnover Ratio & Average Payment Period 8.Return on Capital Employed Ratio
9. Return on Equity 10. Debt/Equity Ratio 11. Proprietary Ratio

Profit & Loss A/C

Particulars
To Opening Stock
To Purchase
To Gross Profit
To Selling & Distribution
Expenses
To Administrative Expenses
To Dividend
To Tax
To Net Profit

Liabilities
Equity
Equity Share Capital
Reserve and Surplus
Long Term Debt
Current Liability
Sundry Creditors
Others Payables

Amount
2,00,000
25,00,000
24,50,000
51,50,000
5,00,000

Particulars
By Sales
By Closing Stock

Amount
50,00,000
1,50,000

By Gross Profit
By Profit on sale of Asset

5,00,000
2,00,000
2,00,000
11,50,000
25,50,000
Balance Sheet
Amount
10,00,000
5,50,000
20,00,000
3,00,000
2,00,000
40,50,000

Calculation of Ratios
Ratio
Formula
Curren Current Assets /
t Ratio Current Liabilities
Quick
Current AssetsRatio
Inventory /
Current Liabilities
Operati Operating Expenses
ng
/ Sales
Expens
es

51,50,000
24,50,000
1,00,000

25,50,000

Assets
Fixed Assets
Land & Building
Plant & Machinery
Current Assets
Stock
Sundry Debtors/Receivables
Cash & Bank Balances

Amount
15,00,000
12,00,000
5,50,000
5,50,000
2,50,000
40,50,000

Computation
1350000 /
500000
1350000-550000
/ 500000

Result
2.7
times
1.6
times

Remarks
Provide your
comments
Provide your
comments

3550000/500000
0

71 %

Provide your
comments

Ratio
Operating Expenses = (Opening Stock+Purchases-Closing
Distribution+Administration Expenses) /Sales
Operati (Sales-Operating
(500000029 %
ng
Expenses) / Sales
3550000)/50000
Profit
00
ratio
Invent
Sales / Inventory
5000000/550000 9.09
ory
Times
Turnov
er
Ratio
Receiv
Sales / Receivables
5000000/550000 9.09
able or
times
Debtor
s
Turnov
er
Ratio
Averag Receivables /Sales * 550000/5000000 40 Days
e
365 days
*365
Collecti
on
Period
or Days
numbe
r of
Sales
Credito Purchases /
2500000/300000 8.33
rs
Creditors
Times
Turnov
er
Ratio
Credito Creditors /
300000/2500000 43.8
rs
Purchases * 365
*365
Days
Numbe
r of
Days or
Purcha
ses or
Averag
e
Payme
nt
Period
Return (Net Profit +
(1150000+2000 33.33%
on
Dividend) / Total
00)/4050000
Capital Assets

Stock+Selling and
Provide your
comments

Provide your
comments

Provide your
comments

Provide your
comments

Provide your
comments

Provide your
comments

Provide your
comments

Employ
ed
Return
on
Equity

(Net Profit +
Dividend)/
(Equity+reserves)

Debt
Equity
Ratio

Long Term Debt /

(Equity + reserves)
Or
(Long Term Debt +
Current Liabilities) /
(Equity+ Reserves
& Surplus)

Proprie
tary
Ratio

Equity + reserves /
Total Assets

(1150000+2000
00)/
(1000000+5500
000)
2000000/
(1000000+5500
00)

(2000000+5000
00)/
(1000000+5500
00)
(1000000+5500
00)/4050000

87.0%

Provide your
comment

1.29
Times

Provide your
comment

1.61Tim
es

38%

Provide your
comment

Question 3
Calculation of another ratio by taking clues from one ratio
From the following details, you are required to find out:
(a) Sales; (b) Inventory Value (c) Equity (d) Profit after Tax (e) Profit after tax as % of sales
(1) Inventory or Stock Turnover Ratio = 4
(2) Debt = Rs. 20,00,000
(3) Debt Equity Ratio = 2:1
(4) Debtor's Turnover Ratio = 5
(5) Debtors or Receivables = Rs, 3,00,000
(6) Return on Equity = 15%
Sales
Debtors = 300000
Debtors Turnover Ratio = 5 times, Therefore Sales is 5 Time of Receivables
Therefore Sales = 300000*5 = 1500000
Inventory
Inventory Turnover Ratio = Sales / Inventory
Therefore 4 = 1500000/Inventory Value
Therefore Inventory Value = 1500000/4 = 375000
Equity
Debt Equity Ratio = Debt / Equity
Therefore 2 = Debt / Equity
Therefore Equity = 2000000/2
Therefore Equity = 1000000
Profit After Tax
Return on Equity = Profit After Tax / Equity
Therefore 10% = PAT/1000000
Therefore PAT = 100000
PAT as % of sales
PAT = 100000
Sales = 1500000
PAT as % of Sales = 6.67%

Question 4
Applying Dupont Model and Comparison
Particulars
Ayush Limited
Piyush
Limited

PAT
3,50,000
5,00,000

Equity
15,00,000
20,00,000

PBT
5,50,000
7,00,000

EBIT
9,00,000
9,00,000

Sales
45,00,000
75,00,000

Assets
40,00,000
40,00,000

Applying Dupont Model for Ayush Limited. You apply to Piyush Limited
and provide your analysis
Ayush Limited
Tax Burden PAT/
PBT

350000/550000

63.63%

Interest
Burden

PBT/EBI
T

550000/900000

61.11%

EBIT
Margin

EBIT/Sal
es

900000/4500000

20%

Asset
Utilisation

Sales /
Assets

4500000/400000
0

1.125

Leverage

Assets /
Equity

4000000/150000
0

2.67

Theory preparation Syllabus

Page 567-577 of Prasanna Chandras Book

Ayush Ltd has a

tax burden of
approx. 36% and
Piyush Limited
has _________.
Who is better?
Ayush Ltd has a
pay interest to
the extent of
approx. 39% of
the EBIT.
Ayush Limited
has 20%
profitability
margin
Asset utilisation
is better being
more than 1
Relatively
Balanced
Leveraged being
less than 3