UNIVERSITY OF MUMBAI

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STUDIES
11

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Financial Statements Subiect : Analysis of m. Maf[ .m. to 2r

Notes:

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marks) restions carry equat -. questions' five anv 111t.:: ;;;;;;; ptaces witl carrv marks'

rn the course or discussilg

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rinanciat ootttt-ll,noJTf";?i.:l ,-:[: ; ac'li vi ti e s bv rs i;;' I ilh **:.''fi in the ensuing vear zox incrlise in turno^ver B*l'n."' for fixed assets,. 10%. rhey ,"oT'..J,".;-;;J "J;i;; p,".,... jnj .o in a totalr profit betore tikety .o in.iuul1" creoitois trade '9'y\t Rs' 22'000 would be debtors, ,.".i., ."[ *l1n been Rs. 18,000 wi[[ have tax for tn""i'"t'' at.nutJ,."ni.uno retained u,.j* puvabte effect of ,,their paid away in monstrate to them the

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:,'.:,r];f*TT;:'lii:..;'oJ'n'**Jnerattvrs ihig*:*|.:'[ffi astart,you'nuu-ui"o'u*ntn"iu*uuittt"sheetasshownbetow:

Dec" 31,2010 Net Current Assets Debtors Stock Bank Overdraft Trade creditors Tax PaYabte Working CaPitat Fixed Assets Total Assets loan Long term fixed Share hotder's f unos

90000

30000

70000 100000 20000

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31' 2011 based on statemei:,1'^ at Dec'

the

-Iil':il: jltfitlil .:i ;Hn*l*;:l[f'P""': ratios as at ;$:lxru three trre unl'io*olring

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Discuss

taken ptace'

the significance *o*piiing 9f'Jhe"changes with 201 1

2010
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in the

rat:ios, which have

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The foltowin S the tne Ba Halanr.F <hoal ,fr Ls LLq. aS On 31 .3.201 1 ,AS on Liabitities As on As on Assets 31"3.10 31.3.1 1 31 .3.1 0 in lakhs in [akhs in lakhs
20

lAs on

31.3.1
1

J.ndre share

capltat tquity

30

in lakhs
36
6

JU

Ptant Stock Debtors Cash batance Misc.expenses

10

Rs.100 each ^eueemaote pret. shares of Rs.100 each Rs.50 catted up share premium

10 JU

4
0 8 16 6 12 2

20
6 4 t

0.50

LdllraI xeoemption
Reserve \rqt tera( Kgserve rr ut tr. u toss a/c vLner uaDltltles

fo5.50
1n LV

76

72

t6

72

Further information furnished : 1. dectareo dividend of 20% ::roany 30,6.

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2.

to equity sharehotders on

3.

4'

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completed before 15-g-2010 in were acc.ordance ,rrtn- ir.." [aw, after making a ca[[ of Rs'50 per share. so as to ml*e The companv,provideo oepreciatron tnu rnur", ruiiv paio at ctosing balance of whose uoo* *i,u was Rs. i,oo,ood-*u,

tg preference shareholders, for redemption -lsl1elrotice at a premium of 5% on l.l.ioto .nJ-tnu'"n'ir" pro.eedings

The company

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up.

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Miscertaneous expenditure included Rs.5 takhs --'!,,J J,, share issue and other expenses paid during the

year.

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or ,ouriu, and apprication of funds for the year

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the fottowing information, you are required to prepare a Batance

7s0001 | 1000001 | 600001 I

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1. Working capitat 2. Reserves and surptus 3. Bank Overdraft 4" Current ratio 5. Liquid ratio 6. Fixed assets to proprietors fund /. Long term Liabitities

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B. Distinguish between the fottowing (any three) a. Current Rqtlo v. euick Ratio. b. Gross Profit v. Cash Plofft c. Bonus Shares v. Cash Dividend as means to reward shareholders d. lebt v. Equity as a means of Capital, Structure. e. Cash ftow statement v. Fund ftow statement.

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(A) A Company has current ratio of 2:1 quick ratio of 1 :'1 debtor's turnover ratio of 4:1 and inventory turnover ratio of 5:1. How ,wi[[ each of the fo.tlowing transactions affect these ratios? (Other tlrings remaining the same) Y/ (a) Purchase of merchandise for cash, (b) Purchase of merchandise on credit o. '\ (c) Sale of merchandise for cash (at profit), \:4$ (d) Sate of merchandise on credit (usuat teims), (e) Creditors Paid in Cash. (f ) Amount Cottected from Debtors deposited in the Overdraf t

(i)
B.

(g) (h)

Account. Fixed Assets purchased on three months credit. Fixed Assets sold at a loss of Rs. 3,500/9% Debentures issued at a discount.

2\

write Short Notes on (any

a"
d. e. \ +

c.

b.

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Window zC" V Debt Service Coverage Common size statement Market Capitatization Accounting Concepts and Conventions

Dressing Ratio

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qatance Sheet of Etite Limited as on 31st March lesl Liabilities Rs Assets Rs Share Capitat: GoodwitI 4,00,000 20,000 Equity Shares Land and Buitding 15,60,000 of' Rs. 100 each futty paid 20.00,000 Ptant &Machinery 14,00,000 Reserve Fund 5,00,000 Patent Rights 3,50,000 Sinking Fund 1,00,000 Stock 2,00,000 Workmen's Accident Sundry Debtors 4,00,000 Compensation Fund lnvestment against (Estimated Liabitiry 50,000 Sinking Fund 1,00,000 Rs. 9,000) Employee's Profit Cash at Bank 30,000 Sharing Fund 1,00,000 Staff Provident Fund 1 ,50,000 Sundry Creditors 1,40,000 'A' Debentures 4,00,000

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'B'Debentures

10,00,000 44,40,000

44,40.00a

tlqes 3 ql. s

1.

A new company by the nu,r.^l1r:at Limited was incorporated with the Authorised capitat of Rs._30 takhs. Ltd. on the date oi its above Batance i;*rt Limited absorbed Er,ite air";;;h"
consideration being: The taking over the tiabitities The payment of .cost absorption (as part of purchase Hu,\ consideration) not exceeding'n . g,Oobi_: The repayment of the 'B' Debentirres at a premium

a) b)

' "'

3' i 5. 6'

3;rn.

of

5% in

A. B"

share subscribed by the Directors at 10%lr"r-iur. You are required to: Show the working of purchase consideration. Batance Sheet of Rascat Limited.

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The discharge of 'A' Debentures at a premium of 10%by the issue of 6% debentures in nur.if Lrr'i*i u, discount of 5To. "A payment of Rs. 15 per share in cash. Attotment of one 7% preference share of Rs. 100 each futty paid and rive equity shares or Rs. 10 ;;;;,;;iry ,ou,. equity shares in Etite Ltd. The actual expenses of absorption came to Rs. 10,000/-. stock of Er,ite Limited inctudes goods vatued at Rs. 56,000/purchased from Rascat Limited ;h;;-.;rpany at cost ptus 16-2/3%. The directoir-or-nurcat invoices goods Limited decided a provision of 5yo on ,rnJri'o"ui"ii

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The Balance un-utilized Authorized

capitat was

Q.6 'd. Discuss Any Two a. IFRS and Accounting Standards b. EVA is nor much Oif?erenifro, nOf i c" Leveraging and capitat struituring
shar:eholders' equity" d. Limitation of Ratio anatysis

as a toot to enhance return

on

B. Calcul.ate the Degree

, -of and the degree of ,Degree of FinanciaI Leverage combined- luu"rug-u for the fottowing firms arid interpret thq results;

operating Leverage,

output (units)
Fixed Cost Rs. Unit variable cost Rs. lnterest Expenses Rs. Unit setting price Rs.

a
75, 700,
1

300, 350,

25,000
3

40,000
25

Nit
1

Q7
Liabitities
Batance Sheet of Majestic Ltd. as en Dec_j1*-2010.
Assets 300000
51

Share Capitat

Equity shares of Rs.10 each futty Equity shares of Rs.10 each Rs. per share paid up 8% Pref.shares of Rs.10 each futty paid Reserves & surplus
7

Fixed Assets Goodwitt

0000 Machinery

500001
i

2300001
l

200000 Factory shed

300000r

P&LA/c
urrent Liabitities
Bank Loan Sundry Creditors

200000 1 20000 100000 270000

1400000 tionaI information: 1l Fixed Assets a'e worth 20% above their actuat vatue. 2l of the investments g0% is non-trading and book the batance is trading. Att trade investments are to be vatued at zdy, betow cosi. A uniform rate of dividend of 10yo is earned on atl investments. lJ F9, the purpose of vatuation of shares, goodwitt is to the basis of 4 years purchase of the super-profits based be considered on on average profit of the last 3 years. profits are as fo[tows:

2008 2009

Rs.

1e0000

tn a simitar urrrnuir'Jrr-on capitat emptoyed ts on1.4.2008 new furniture costing Rs. 20,000 was purchut"c uut *ronliv charged to revenue, No effect has yet been given for rectifying the rur".-ti"preciation charged on furniture is at the rate of 1o%. A new contract with Managing Director witl resutt in increase in his renruneratlon ov ni. ioob'i-'p"r annum. Find out the vatue of each futty paid and partty paid equity share.

zolo

200000 \ 210000 l

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