Financial Accounting With Solution

Assignment I - Journal
Q.1 Journalize the following relating to April 2009:

Particulars
Rs.
1. R. started business with
1,00,000
2. He purchased furniture for
20,000
3. Paid salary to his clerk
1,000
4. Paid rent
5,000
5. Received interest
2,000
Solution:
Date
Particulars
1 Cash A/c Dr
To Capital A/c
2 Furniture A/c Dr
To Cash A/c
3 Salary A/c Dr
To Cash A/c
4 Rent A/c Dr
To Cash A/c
5 Cash A/c Dr
To Interest A/c
Ledger Folio
Debit Amount
(Rs)
100,000
Credit
Amount (Rs)
100,000
20,000
20,000
1,000
1,000
5,000
5,000
2,000
2,000
Q.2 Journalize transactions of M/s X & Co. for the month of March 2009 on the basis of
double entry system:
1. X introduced cash Rs. 4,00,000.
2. Cash deposited in the Citibank Rs. 2,00,000.
3. Cash loan of Rs. 50,000 taken from Y.
4. Salaries paid for the month of March 2009, Rs. 30,000 and Rs. 10,000 is still payable for the
month of March 2009.
5. Furniture purchased Rs. 50,000.
Solution:
Date
Particulars
1 Cash A/c Dr
To Captial (X) A/c
2 Bank A/c Dr
To Cash A/c
3 Cash A/c Dr
To Y A/c
4 Salary A/c Dr
To Cash A/c
To Outstanding Salary A/c
5 Furniture A/c Dr
To Cash A/c
Ledger Folio
Debit Amount
(Rs)
400,000
Credit Amount
(Rs)
400,000
200,000
200,000
50,000
50,000
40,000
30,000
10,000
50,000
50,000
Q.3 Journalize the following transactions.

1. December 1, 2008, Ajit started-business with cash Rs. 4,00,000.
2: December 3, he paid into the bank Rs. 20,000.
3. December 5, he purchased goods for cash Rs. 1,50,000.
4. December 8, he sold goods for cash Rs. 60,000.
5. December 10, he purchased furniture and paid by cheque Rs. 50,000.
6. December 12, he sold goods to Arvind Rs. 40,000.
7. December 14, he purchased goods from Amrit Rs. 1,00,000.
8. December 15, he returned goods to Amrit Rs. 50,000.
9. December 16, he received from Arvind Rs. 39,600 in full settlement.
10. December 18, he withdrew goods for personal use Rs. 10,000.
11. December 20, he withdrew cash from business for personal use Rs. 20,000.
12. December 24, he paid telephone charges Rs. 10,000.
13. December 26, cash paid to Amrit in full settlement Rs. 49,000.
14. December 31, paid for stationery Rs. 2,000, rent Rs. 5,000 and salaries to staff Rs. 20,000.
15. December 31, goods distributed by way of free samples Rs. 10,000.
16. December 31, wages paid for erection of Machinery Rs. 80,000.
17. Personal income tax liability of X of Rs. 17,000 was paid out of petty cash of business.
18. Purchase of goods from Naveen of the list price of Rs. 20,000. He allowed 10% trade
discount, Rs. 500 cash discount was also allowed for quick payment.
Solution:
Date
Particulars
1-Dec-08 Cash A/c Dr
To Capital A/c
3-Dec-08 Bank A/c Dr
To Cash A/c
5-Dec-08 Purchase A/c Dr
To Cash A/c
To Sales A/c
10-Dec-08 Furniture A/c Dr
To Bank A/c
12-Dec-08 Arvind A/c Dr
To Sales A/c
To Amrit A/c
Ledger Folio
Debit Amount
(Rs)
400,000
Credit Amount
(Rs)
400,000
20,000
20,000
150,000
150,000
60,000
60,000
50,000
50,000
40,000
40,000
100,000
100,000
15-Dec-08 Amrit A/c Dr

To Purchase Returns A/c
Discount A/c Dr
To Arvind A/c
18-Dec-08 Drawings Dr
To Purchase A/c
To Cash A/c
24-Dec-08 Telephone A/c Dr
To Cash A/c
26-Dec-08 Amrit A/c Dr
To Cash A/c
To Discount A/c
31-Dec-08 Stationery A/c Dr
Rent A/c Dr
Salary A/c Dr
To Cash A/c
31-Dec-08 Advertising A/c Dr
To Purchase A/c
31-Dec-08 Machinery A/c Dr
To Cash A/c
To Petty Cash A/c
Discount A/c Dr
To Cash A/c
50,000
50,000
39,600
400
40,000
10,000
10,000
20,000
20,000
10,000
10,000
50,000
49,000
1,000
2,000
5,000
20,000
27,000
10,000
10,000
80,000
80,000
17,000
17,000
18,000
500
17,500
Q 4 Transactions of Ramesh for April are given below. Journalize them.

2009
April 1
April 2
April 3
April 5
April 13
April 20
April 24
April 28
April 30
Rs.
1,00,000
70,000
5,000
1,000
1,500
2,250
1,450
50
2,150
100
8,000
500
1,000
Ramesh started business with

Paid into bank
Bought goods for cash
Drew cash from bank for credit
Sold to Krishna goods on credit
Bought from Shyam goods on credit
Received from Krishna
Allowed him discount
Paid Shyam cash
Discount allowed
Cash sales for the month
Paid Rent
Paid Salary
Solution:
Date
Particulars
1-Apr Cash A/c Dr
To Capital (X) A/c
2-Apr Bank A/c Dr
To Cash A/c
3-Apr Purchase A/c Dr
To Cash A/c
5-Apr Cash A/c Dr
To Bank A/c
13-Apr Krishna A/c Dr
To Sales A/c
20-Apr Purchase A/c Dr
To Shyam A/c
24-Apr Cash A/c Dr
Discount A/c Dr
To Krishna A/c
28-Apr Shyam A/c Dr
To Discount A/c
To Cash A/c
Ledger Folio
Debit Amount
(Rs)
100,000
Credit Amount
(Rs)
100,000
70,000
70,000
5,000
5,000
1,000
1,000
1,500
1,500
2,250
2,250
1,450
50
1,500
2,250
100
2,150
30-Apr Cash A/c Dr

To Sales A/c
Rent A/c Dr
Salary A/c Dr
To Cash A/c
8,000
8,000
500
1,000
1,500
Assignment II Ledger
Q. 1 Prepare the Stationery Account of a firm for the year ended December 31, 2008:
2008
January 1
April 5
November 15
December 31
Particulars
Stock in hand
Purchase of stationery by cheque
Purchase of stationery on credit from Five Star Stationery Mart
Stock in hand
Rs.
480
800
1,280
240
Solution:
Stationery A/c
Date
Particulars
Amount
(Rs)
1-Jan To Balance b/d
480
5-Apr To Bank A/c
800
To Five Star
15-Nov Stationery Mart
Date
Particulars
Amount (Rs)
1,280
By Profit and
Loss A/c
31-Dec By Balance c/d
2,560
2,320
240
2,560
Q.2 Prepare a ledger from the following transactions in the books of a trader
Debit Balance on January 1, 2008:
Cash in Hand Rs. 8,000, Cash at Bank Rs. 25,000, Stock of Goods Rs. 20,000, Building Rs.
10,000. Sundry Debtors: Vijay Rs. 2,000 and Madhu Rs. 2,000.
Credit Balances on January 1, 2008:
Sundry Creditors: Anand Rs. 5,000.
Following were further transactions in the month of January 2008:
January 1
January 4
January 8
January 12
January 15
January 18
Purchased goods worth Rs. 5,000 for cash less 20% trade discount and 5%
cash discount.
Received Rs. 1,980 from Vijay and allowed him Rs. 20 as discount.
Purchased plant from Mukesh for Rs. 5,000 and paid Rs. 100 as cartage for
bringing the plant to the factory and another Rs. 200 as installation charges.
Sold goods to Rahim on credit Rs. 600.
Rahim became insolvent and could pay only 50 paise in a rupee.
Sold goods to Ram for cash Rs. 1,000.
Solution:
Cash A/c
Date
Particulars
Amount
(Rs)
1-Jan To Balace b/d
8,000
4-Jan To Vijay A/c
1,980
To Plant & Machinery

8-Jan A/c
300
15-Jan To Rahim A/c
300
18-Jan To Ram A/c
1,000
Date
Particulars
1-Jan By Purchase A/c
31-Jan By Balance c/d

11,580
Amount
(Rs)
3,800
7,780
11,580
Bank A/c
Date
Particulars
Amount
(Rs)
25,000
Date
Particulars
Amount
(Rs)

25,000
25,000
25,000
Purchase A/c
Date
Particulars
Amount
(Rs)
20,000
1-Jan To Cash A/c
3,800
1-Jan To Discount A/c
200
Date
Particulars

24,000
Amount
(Rs)
24,000
24,000
Building A/c
Date
Particulars
Amount
(Rs)
Date
Particulars
Amount
(Rs)
10,000
10,000
10,000
10,000
Vijay A/c
Date
Particulars
Amount
(Rs)
Date
Particulars
Amount
(Rs)
2,000
2,000
4-Jan By Cash A/c
1,980
4-Jan By Discount A/c
20
2,000
Madhu A/c
Date
Particulars
Amount
(Rs)
Date
Particulars
Amount
(Rs)
2,000
2,000
2,000
2,000
Anand A/c
Date
Particulars
Amount
(Rs)
Date
Particulars
1-Jan By Balance b/d

31-Jan To Balance c/d
Amount
(Rs)
5,000
5,000
5,000
5,000
Discount A/c
Date
Particulars
Amount
(Rs)
Date
Particulars

4-Jan To Vijay A/c
20
180
200
Amount
(Rs)
200
200
Mukesh A/c
Date
Particulars
Amount
(Rs)
Date
Particulars
By Plant & Machinery

8-Jan A/c
Amount
(Rs)
5,000
5,000
5,000
5,000
Sales A/c
Date
Particulars
Amount
(Rs)
Date
Particulars
Amount
(Rs)
12-Jan By Rahim A/c
600
18-Jan By Cash A/c
1,000
1,600
1,600
1,600
Rahim A/c
Date
Particulars
12-Jan To Sales A/c
Amount
(Rs)
Date
Particulars
Amount
(Rs)
600
15-Jan By Cash A/c
300
15-Jan By Bad Debt A/c
300
600
600
Plant & Machinery A/c
Date
Particulars
Amount
(Rs)
8-Jan To Mukesh A/c
5,000
8-Jan To Cash A/c
300
Date
Particulars

5,300
Amount
(Rs)
5,300
5,300
Bad Debt A/c
Date
Particulars
15-Jan To Rahim A/c
Amount
(Rs)
Date
Particulars
Amount
(Rs)
300
300
300
300
Q. 3 The following data is given by Mr. S, the owner, with a request to compile only the two
personal accounts of Mr. H and Mr. R, in his ledger, for the month of April 2008.
1
Mr. S owes Mr. R Rs. 15,000; Mr. H owes Mr. S Rs. 20,000.
4
Mr. R sold goods worth Rs. 60,000 @ 10% trade discount to Mr. S.
5
Mr. S sold to Mr. H goods prices at Rs.30,000.
17 Record purchase of Rs. 25,000 net from R, which were sold to H at profit of Rs. 15,000.
18 Mr. S rejected 10% of Mr. Rs goods of 4th April.
19 Mr. S issued a cash memo for Rs. 10,000 to Mr. H who came personally for this
consignment of goods, urgently needed by him.
22 Mr. H cleared half his total dues to Mr. S, enjoying a % cash discount (of the payment
received, Rs. 20,000 was by cheque).
26 Rs total dues (less Rs. 10,000 held back) were cleared by cheque, enjoying a cash discount
of Rs. 1,000 on the payment made.
29 Close Hs Account to record the fact that all but Rs. 5,000 was cleared by him, by a
cheque, because he was declared bankrupt.
30
Balance Rs Account.
Solution:
Mr H A/c
Date
Particulars
Amount
(Rs)
1-Apr
To Balance b/d
20,000
5-Apr
To Sales A/c
30,000
17-Jan
To Sales A/c
40,000
Date
Particulars
Amount
(Rs)
22-Apr
By Cash A/c
24,775
22-Apr
By Discount A/c
225
22-Apr
By Bank A/c
20,000
29-Apr
By Bank A/c
40,000
29-Apr
By Bad Debt A/c
5,000
Mr R A/c
Date
Particulars
18-Apr To Purchase returns A/c
Amount
(Rs)
5,400
To Bank A/c
77,600
To Discount A/c
1,000
To Balance c/d
10,000
Date
Particulars
Amount
(Rs)
1-Apr By Balance b/d
15,000
4-Apr By Purchase A/c
54,000
25,000
Assignment III Trial Balance

Q. 1 Given below is a ledger extract relating to the business of X and Co. as on March 31, 2009.
You are required to prepare the Trial Balance.
Cash Account
Dr.
Cr.
Particulars
Rs.
Particulars
Rs.
To Capital A/c
10,000 By Furniture A/c
3,000
To Rams A/c
25,000 By Salaries A/c
2,500
To Cash Sales
500 By Shyams A/c

By Cash Purchases
21,000
1,000
By Capital A/c
500
By Balance c/d
7,500
35,500
35,500
Furniture Account
Dr.
Cr.
Particulars
To Cash A/c
Rs.
Particulars
Rs.
3,000 By Balance c/d
3,000
3,000
3,000
Salaries Account
Dr.
Cr.
Particulars
To Cash A/c
Rs.
Particulars
Rs.
2,500
2,500
2,500
Shyams Account
Dr.
Cr.
Particulars
To Cash A/c
To Purchase Returns A/c
To Balance c/d
Rs.
Particulars
21,000 By Purchases A/c

(Credit Purchases)
Rs.
25,000
500
3,500
25,000
25,000
Purchases Account
Dr.
Cr.
Particulars
Rs.
To Cash A/c (Cash Purchases)

To Sundries as per Purchases
Book (Credit Purchases)
Particulars
Rs.
26,000
25,000
26,000
26,000
Purchases Returns Account

Dr.
Cr.
Particulars
To Balance c/d
Rs.
Particulars
Rs.
500 By Sundries as per Purchases

Return Book
500
500
500
Rams Account
Dr.
Cr.
Particulars
To Sales A/c (Credit Sales)
Particulars
Rs.
30,000 By Sales Returns A/c
100
Rs.
By Cash A/c
By Balance c/d
30,000
25,000
4,900
30,000
Sales Account
Dr.
Cr.
Particulars
To Balance c/d
Rs.
Particulars
30,500 By Cash A/c (Cash Sales)

By Sundries as per Sales Book
(Credit sales)
30,500
Rs.
500
30,000
30,500
Sales Returns Account

Dr.
Cr.
Particulars
To Sundries as per Sales

Return Book
Rs.
Particulars
100 By Balance c/d
Rs.
100
100
100
Capital Account
Dr.
Cr.
Particulars
To Cash A/c
To Balance c/d
Rs.
Rs.
Particulars
500 By Cash A/c
10,000
9,500
10,000
10,000
Solution:
S. No.
Trial Balance X and Co. as on March 31, 2009

Debit Amount (Total)
Credit Amount (Total)
Ledger Account L.F. No.
Rs
Rs
1. Cash Account
7,500
2. Furniture Account
3,000
3. Salaries Account
2,500
4. Shyam's Account
5. Purchases Account
3,500
26,000
6. Purchase Returns Account

7. Ram's Account
500
4,900
8. Sales Account
9. Sales Returns Account
30,500
100
10. Capital Account
9,500
44,000
44,000
Q.2 From the following ledger balances, prepare a trial balance of Anuradha Traders as on
March 31, 2009:
Account Head
Rs.
Capital
1,00,000
Sales
1,66,000
Purchases
1,50,000
Sales return
1,000
Discount allowed
2,000
Expenses
10,000
Debtors
75,000
Creditors
25,000
Investments
15,000
Cash at bank and in hand
37,000
Interest received on investments
1,500
Insurance paid
2,500
Solution:
S. No.
Capital
Trial Balance Anuradha Traders as on March 31, 2009

Debit Amount (Total)
Credit Amount (Total)
Ledger Account L.F. No.
Rs
Rs
100,000
Sales
166,000
Purchases
150,000
Sales return
1,000
Discount allowed
2,000
Expenses
10,000
Debtors
75,000
Creditors
25,000
Investments
15,000
Cash at bank and in hand
37,000
Interest received on investments
1,500
Insurance paid
2,500
292,500
292,500
Q.3 One of your clients, X has asked you to finalize his accounts for the year ended March 31,
2009. Till date, he himself has recorded the transactions in books of accounts. As a basis for
audit, X furnished you with the following statement.
Dr. Balance
Xs Capital
1,556
Xs Drawings
564
Leasehold premises
750
Sales
2,750
Due from customers

Purchases
Purchases return
530
1,259
264
Loan from bank
256
Creditors
528
Trade expenses
700
Cash at bank
226
Bills payable
100
Salaries and wages
600
Stock (1.4.2008)
Rent and rates
Cr. Balance
264
463
Sales return
98
5,454
5,454
The closing stock on March 31, 2009 was valued at Rs. 574. X claims that he has recorded every
transaction correctly as the trial balance is tallied. Check the accuracy of the above trial balance.
Solution:
Trial Balance of X as on March 31, 2009
S. No. Ledger Account L.F. No.
Dr. Balance
Xs Capital
Xs Drawings
Leasehold premises
Sales
Due from customers
Purchases
Purchases return
Loan from bank
Creditors
Trade expenses
Cash at bank
Bills payable
Salaries and wages
Stock (1.4.2008)
Rent and rates
Sales return
Cr. Balance
1,556
564
750
2,750
530
1259
264
256
528
700
226
100
600
264
463
98
5,454
5,454
Assignment IV Final Accounts

Q.1 From the following information, prepare a Trading Account of M/s. ABC Traders for the
year ended March 31, 2009:
Rs.
Opening Stock
1,00,000
Purchases
6,72,000
Carriage Inwards
30,000
Wages
50,000
Sales
11,00,000
Returns inward
1,00,000
Returns outward
72,000
Closing stock
2,00,000
Solution:
Trading Account of M/s. ABC Traders for the year ended March 31, 2009
Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Opening Stock
100,000
Sales
1,100,000
Purchases
672,000
Less: Return Inwards
(100,000)
Less: Return Outwards
(72,000)
Carriage Inwards
30,000
Wages
50,000
Gross Profit
420,000
Closing Stock
200,000
1,200,000
1,200,000
Q.2 Revenue expenses and gross profit balances of M/s ABC Traders for the year ended on
March 31, 2009 were as follows:
Gross Profit Rs. 4,20,000, Salaries Rs. 1,10,000, Discount (Cr.), Rs. 18,000, Discount (Dr.) Rs.
19,000, Bad Debts Rs. 17,000, Depreciation Rs. 65,000, Legal Charges Rs. 25,000, Consultancy
Fees Rs. 32,000, Audit Fees Rs. 1,000, Electricity Charges Rs. 17,000, Telephone, Postage and
Telegrams Rs. 12,000, Stationery Rs. 27,000, Interest paid on Loans Rs. 70,000.
Prepare Profit and Loss Account of M/s ABC Traders for the year ended on March 31, 2009.
Solution:
P&L Account of M/s ABC Traders for the year ended on March 31, 2009
Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Salaries
110,000
Gross Profit
420,000
Discount (Dr)
19,000
Discount (Cr)
18,000
Bad Debts
17,000
Depreciation
65,000
Legal Charges
25,000
Consultancy Fees
32,000
Audit Fees
1,000
Electricity Charges
Telephone, Postage &
Telegrams
17,000
Stationery
27,000
Interest paid on loans
70,000
Net Profit
43,000
12,000
438,000
438,000
Q.3 Mr. X submits you the following information for the year ended March 31, 2009:
Rs.
Stock as on April 1, 2008
1,50,000
Purchases
4,37,000
Manufacturing expenses
85,000
Expenses on sale
33,000
Expenses on administration
18,000
Financial charges
6,000
Sales
6,25,000
Gross profit is 20% of sales.

Compute the net profit of Mr. X for the year ended March 31, 2009. Also prepare Trading &
Profit & Loss A/c.
Solution:
Trading Account of Mr X for the year ended on March 31, 2009
Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Opening Stock
150,000
Purchases
437,000
Manufacturing Expenses
85,000
Gross Profit
125,000
Sales
625,000
Closing Stock
172,000
797,000
797,000
P&L Account of Mr X for the year ended on March 31, 2009

Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Expenses on Sale
Expenses on
administration
33,000
Financial charges
6,000
Net Profit
68,000
Gross Profit
125,000
18,000
125,000
125,000
Q.4 A book keeper has submitted to you the following trial balance of X wherein the total of
debit and credit balances is not equal:
Particulars
Debit Balances
Rs.
Credit Balances
Rs.
Capital
7,670
Cash in hand
30
8,990
11,060
Cash at bank
885
Fixtures & fittings
225
Freehold premises
1,500
65
Bills receivable
825
Returns inwards
30
1,075
1,890
Debtors
5,700
Stock (1.1.2008)
3,000
225
1,875
Rates, taxes and insurance
190
Discounts received
445
Discounts allowed
200
24,175
21,705
Purchases
Sales
Lighting and heating
Salaries
Creditors
Printing
Bills payable
You are required to:

(i) Redraft the Trial Balance correctly.
(ii) Prepare a Trading and Profit and Loss Account and a Balance Sheet after taking into account
the following adjustments:
(a) Stock in hand on 31.12.2008 was valued at Rs. 1,800
(b) Depreciate fixtures and fittings by Rs. 25.
(c) Rs. 350 was due and unpaid in respect of salaries.
(d) Rates and insurance had been in paid in advance to the extent of Rs. 40.
Solution:
S. No. Ledger Account
Trial Balance of X
L.F. No.
Dr. Balance
Cr. Balance
Capital
7,670
Cash in hand
30
Purchases
8,990
Sales
11,060
Cash at bank
885
Fixtures & fittings
225
Freehold premises
1,500
Lighting and heating
65
Bills receivable
825
Returns inwards
30
Salaries
1,075
Creditors
1,890
Debtors
5,700
Stock (1.1.2008)
3,000
Printing
225
Bills payable
1,875
Rates, taxes and insurance
190
Discounts received
445
Discounts allowed
200
22,940
22,940
Trading Account of Mr X for the year ended December 31,2008.
Debit Amount
(Rs)
Particulars
Particulars
Credit Amount
(Rs)
Stock (1.1.2008.)
3,000
Sales
11,060
Purchases
8,990
Less: Return Inwards
(30)
Gross Profit
840
Stock (31.12.2008.)
1,800
12,830
12,830
P&L Account of Mr X for the year ended December 31,2008.

Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Depreciation F&F
25
Gross Profit
840
Outstanding Salaries
350
Discount received
445
Rates, taxes & Insurance
190
Less: Advance
(40)
Lighting & Heating
65
Salaries
1,075
Printing
225
Discount allowed
200
Net Profit
(805)
1,285
Particulars
Reserves & Capital
1,285
Balance Sheet of Mr X as on December 31,2008.

Credit Amount
(Rs)
Particulars
Fixed Assets
Debit Amount
(Rs)
Capital
7,670
Fixtures & Fittings
225
Net Profit
(805)
Less: Depreciation
(25)
Freehold premises
1,500
Liabilities
Creditors
1,890
Current Assets
Bills Payable
1,875
Cash in hand
30
Outstanding Salaries
350
Cash at bank
885
Bills receivable
825
Debtors
5,700
Stock
Advance rates &
insurance
1,800
10,980
40
10,980
Q.5 The following is trial balance extracted from the books of X as on 31 March 2009:
Debit Amount
Rs.
Credit Amount
Rs.
1,00,000
78,000
2,000
60,000
1,27,000
1,000
750
30,000
425
800
45,000
25,000
7,550
10,000
1,200
525
10,000
Advertisements
2,000
Cash
6,900
2,54,075
2,54,075
Capital Account
Plant and Machinery
Furniture
Purchases and Sales
Returns
Opening stock
Discount
Sundry Debtors/Creditors
Salaries
Manufacturing wages
Carriage outwards
Provision for doubtful debts
Rent, rates and taxes
Prepare trading and profit and loss account for the year ended 31 March 2009 and a balance
sheet on that date after taking into account the following adjustments:
(a) Closing stock was valued at Rs. 34,220.
(b) Provision for doubtful debts is to be kept at Rs. 500
(c) Depreciate plant and machinery @ 10% p.a.
(d) The proprietor has taken goods worth Rs. 5,000 for personal use and additionally
distributed goods worth Rs. 1,000 as samples.
(e) Purchase of furniture Rs. 920 has been passed through purchases book.
Solution:
Trading Account of Mr X for the year ended March 31, 2009.
Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Opening Stock
30,000
Sales
127,000
Purchases
60,000
(1,000)
Less: Purchase Returns
(750)
Less: Sales Returns

Provision for doubtful
debts
Less: Furniture
(920)
Less: Drawings
(5,000)
Less: Advertisement
(1,000)
Manufacturing Wages
10,000
Gross Profit
67,915
Closing Stock
34,220
160,245
25
160,245
P&L Account of Mr X for the year ended March 31, 2009.

Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Dicount allowed
425
Gross Profit
67,915
Salaries
7,550
Discount received
800
Carriage Outwards
1,200
Deprecitation P&M
7,800
Rent, rates & taxes
10,000
Distributed goods
1,000
Advertisements
2,000
Net Profit
38,740
68,715
68,715
Particulars
Reserves & Capital
Balance Sheet of Mr X as on March 31,2009.

Credit Amount
(Rs)
Particulars
Fixed Assets
Debit Amount
(Rs)
Capital
100,000
Plant & Machinery
78,000
Net Profit
38,740
Less: Depreciation
(7,800)
Less: Drawings
(5,000)
Furniture
2,000
Add: Provision
Current Assets
920
Stock
34,220
Debtors
Less: Provision for
doubtful debts
45,000
Cash
6,900
Liabilities
Creditors
25,000
158,740
(500)
158,740
Q.6 From the following trial balance and other information prepare profit and loss account for
the year ended 31 March 2009 and a balance sheet on that date:
Debit
Rs.
Credit
Rs.
10,00,000
1,000
Balance at bank
1,76,000
Motor Vehicle
1,50,000
Debtors and Creditors
2,94,000
2,30,000
Printing and stationery
6,600
Gross Profit
5,71,400
Provision for doubtful debts
5,000
11,400
8,00,000
47,600
2,00,000
20,000
2,80,000
99,000
1,31,400
15,000
1,00,000
Unpaid wages
1,600
Last Year Profit and Loss Account Balance
1,24,000
21,32,000
21,32,000
Xs Capital Account
Withdrawals of goods for personal use
Bad debts
Freehold premises
Repairs to Premises
General Reserve
Proprietors remuneration
Stock
Delivery expenses
Administrative expenses
Rates and taxes
Drawings
Adjustments
(i) Depreciation on Motor Vehicles @ 50%
(ii) Creditors include a claim for damages of Rs. 30,000 and which was settled by paying Rs.
20,000.
(iii) Rates paid in advance Rs. 3,000.
(iv) Provision for bad debts is to be reduced to Rs. 3,500.
(v) The item of repairs to premises includes Rs. 20,000 for acquisition of capital asset.
(vi) Stock of stationery in hand on 31 March 2009 is Rs. 2,200.
Solution:
Particulars
P&L Account for the year ended March 31, 2009.

Debit Amount
(Rs)
Particulars
Bad Debts
11,400
Repair to premises
Credit Amount
(Rs)
571,400
47,600
Gross Profit
Discount for damages
paid
Less: Capital expense
(20,000)
Provison for bad debts
1,500
Proprietor's remuneration
20,000
Delivery expenses
99,000
Administrative expenses
131,400
Rates & taxes

Less: Rates paid in
advance
Depreciation on Motor
Vehicles
15,000
Printing & stationery
6,600
Less: adjustments
(2,200)
Net Profit
202,100
(3,000)
75,000
582,900
Particulars
10,000
582,900
Balance Sheet as on March 31, 2009.

Credit Amount
(Rs)
Particulars
Debit Amount
(Rs)
Capital
1,000,000
Motor Vehicle
150,000
Less: Drawings
(1,000)
Less: Depreciation
(75,000)
Less: Drawings
(100,000)
Freehold premises
800,000
General Reserve
200,000
Add: Capital asset
20,000
P&L balance
Net Profit
124,000
Balance at Bank
Less: Damage settlement
176,000
202,100
(20,000)
Creditors
230,000
Stock of Stationery
2,200
Less: damages settlement
(30,000)
Stock
280,000
Unpaid Wages
1,600
Debtors
Less: Provision for
doubtful debts
294,000
Rates paid in advance
3,000
1,626,700
(3,500)
1,626,700
Q.7 The following trial balance has been extracted from the books of Ms. X. Prepare the final
accounts for the year ended 31 March 2009 and a balance sheet on that date:
Debit
Rs.
Credit
Rs.
Drawings
35,000
Buildings
60,000
Debtors and creditors
50,000
80,000
3,500
2,900
3,00,000
4,65,000
Discount
7,100
5,100
Life insurance
3,000
Cash
30,000
Stock (opening)
12,000
5,000
17,000
Returns
Purchases and sales
Bad debts
Reserve for bad debts
Carriage inwards
Wages
Machinery
6,200
27,700
8,00,000
Furniture
60,000
Salaries
35,000
Bank commission
2,000
Bills receivable/payable
60,000
40,000
Trade expenses/Capital
13,500
9,00,000
15,10,000
15,10,000
Adjustments:
(i) Depreciate building by 5%; furniture and machinery by 10% p.a.
(ii) Trade expenses Rs. 2,500 and wages Rs. 3,500 have not been paid as yet.
(iii) Allow interest on capital at 5% p.a.
(iv) Make provision for doubtful debts at 5%.
(v) Machinery includes Rs. 2,00,000 of a machine purchased an 31 December 2008. Wages
include Rs. 5,700 spent on the installation of machine.
Stock on 31 March 2009 was valued at Rs. 50,000.
Solution:
Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Opening Stock
12,000
Sales
465,000
Purchases
300,000
Less: Sales Returns
(3,500)
Less: Purchase Returns
(2,900)
Reserve for bad debt
14,500
Trade expenses
13,500
Unpaid trade expenses
2,500
Wages
27,700
Less: Installation charges
(5,700)
Carriage Inwards
6,200
Unpaid wages
3,500
Gross Profit
169,200
Closing Stock
50,000
526,000
526,000

Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Dicount allowed
7,100
Gross Profit
169,200
Salaries
35,000
Discount received
5,100
Depreciation building
3,000
Depreciation furniture
6,000
Depreciation machinery
65,143
Bank Commission
2,000
Interest on Capital
Bad Debts
45,000
5,000
Net Profit
6,058
174,300
Particulars
174,300
Balance Sheet of Mr X as on March 31, 2009.

Credit Amount
(Rs)
Particulars
Debit Amount
(Rs)
Capital
900,000
Buildings
60,000
Less: Drawings
(35,000)
Less: Depreciation
(3,000)
Less: Life Insurance
(3,000)
Machinery
800,000
Interest on Capital
45,000
Add: Provision
5,700
Less: Depreciation
(65,143)
Furniture
60,000
Less: Depreciation
(6,000)
Net Profit
6,058
Creditors
80,000
Stock
50,000
Bills Payable
40,000
Debtors
Less: Provision for bad
debts
50,000
(2,500)
Unpaid Trade expenses
2,500
Bills Receivable
60,000
Unpaid wages
3,500
Cash
30,000
1,039,058
1,039,058
Q.8 The following is the Trial Balance of X on 31 March 2009:
Capital
Drawings
Opening Stock
Purchases
Freight on Purchases
Wages (11 months upto 28-2-2009)
Sales
Salaries
Postage, Telegrams, Telephones
Printing and Stationery
Miscellaneous Expenses
Creditors
Investments
Discounts Received
Debtors
Bad Debts
Provision for Bad Debts
Building
Machinery
Furniture
Commission on Sales
Interest on Investments
Insurance (Year up to 31-7-2009)
Bank Balance
Debit
Rs.
Credit
Rs.
60,000
75,000
15,95,000
25,000
66,000
1,40,000
12,000
18,000
30,000
1,00,000
2,50,000
15,000
3,00,000
5,00,000
40,000
45,000
24,000
1,50,000
8,00,000
23,10,000
3,00,000
15,000
8,000
12,000
-
34,45,000
34,45,000
Adjustments:
(i) Closing Stock Rs. 2,25,000.
(ii) Machinery worth Rs. 45,000 purchased on 1-10-08 was shown as Purchases. Freight paid on
the Machinery was Rs. 5,000, which is included in Freight on Purchases.
(iii)Commission is payable at 2% on Sales.
(iv) Investments were sold at 10% profit, but the entire sales proceeds have been taken as Sales.
(v) Write off Bad Debts Rs. 10,000 and create a provision for Doubtful Debts at 5% of Debtors.
(vi) Depreciate Building by 2% p.a. and Machinery and Furniture at 10% p.a. Prepare Trading
and Profit and Loss Account for the year ending 31 March 2009 and a Balance Sheet as on
that date.
Solution:
Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Opening Stock
75,000
Purchases
Less: Purchase of
Machinery
1,595,000
Freight on purchases
Less: Freight on purchase
of machinery
25,000
Wages
66,000
Outstanding wages
6,000
Gross Profit
708,000
Sales
Less: Proceeds from
investments
2,310,000
Closing Stock
225,000
(110,000)
(45,000)
(5,000)
2,425,000
2,425,000

Debit Amount
Credit Amount
Particulars
(Rs)
Particulars
(Rs)
Depreciation: Building
7,500
Gross Profit
708,000
Depreciation: Furniture
4,000
Discount Received
15,000
Depreciation: Machinery
52,500
12,000
Salaries
Postage, telegrams &
telephones
140,000
Intereset on investments
Proceeds from
investments
Printing & Stationery
18,000
Miscellaneous Expenses
Insurance
30,000
12,000
10,000
24,000
Less: Prepaid Insurance
(8,000)
Commission on Sales
Outstanding commission
on Sales
45,000
Bad Debts
15,000
Add: Write off
10,000
Provision for bad debts
4,000
Net Profit
381,000
10,000
745,000
Particulars
745,000
Balance Sheet of Mr X as on March 31, 2009.

Credit Amount
(Rs)
Particulars
Capital
800,000
Less: Drawings
(60,000)
Net Profit
381,000
Outstanding commission
on Sales
10,000
Debit Amount
(Rs)
Machinery
Add: Purchase of
machinery
Add: Freight on purchase
of machinery
500,000
Less: Depreciation
(52,500)
Building
300,000
Less: Depreciation
(7,500)
Furniture
40,000
Less: Depreciation
(4,000)
Bank Balance
150,000
Stock
225,000
Investments
100,000
Less: Sale of investments
(100,000)
45,000
5,000
Outstanding wages
Creditors
6,000
Debtors
250,000
(10,000)
300,000
Less: Write off bad debts

Less: Provision for bad
debts
Prepaid Insurance
8,000
1,437,000
(12,000)
1,437,000
Assignment V - Financial Statement Analysis

Q.1 From the following particulars relating to AB Co. prepare a Balance Sheet as on 31.12.2009:
Fixed assets / turnover ratio
1:2
Debt collection period
Two months
Gross profit
25%
Consumption of raw materials
40% of cost
Stock of Raw materials
4 months consumption
Finished goods
20% of turnover at cost
Fixed Assets to Current Assets
1:1
Current Ratio
2:1
Long Term loan to current Liability
1:3
Capital to Reserve
5:2
Value of Fixed Assets
Rs. 10,50,000
Solution:
Fixed Assets = Rs. 10,50,000
Fixed assets / turnover ratio = Fixed assets / Sales =1:2
Sales = Rs 21,00,000
Fixed assets / current assets = 1:1
Current assets = Rs 10,50,000
Gross Profit = 25% * Sales
Gross Profit = Rs 5,25,000
Cost of Goods Sold = Sales Gross Profit
Cost of Goods Sold (COGS) = Rs 15,75,000
Consumption of raw material = 40% * COGS
Consumption of raw material = Rs 6,30,000
Stock of raw material = COGS /12 *4
Stock of raw material = Rs 2,10,000
Finished goods = 20% * COGS
Finished goods = Rs 3,15,000
Debt Collection Period = Average debtors * 12 / Net Credit Sales
Average Debtors = Net credit Sales/12 * debt collection period
Average debtors = Rs 21,00,000 * 2/12
Average debtors = Rs 3,50,000
Current ratio = Current Assets / Current Liabilities = 2 :1
Current Liabilities = Rs 5,25,000
Long term loan to current liability = 1: 3

Long term loan = Rs 1,75,000
Total Assets = Fixed Assets + Current Assets = Rs 21,00,000
Total Liabilities = Rs 21,00,000
Networth = ESC + R&S = Total Liabilities Current Liabilities Long Term Debt
Networth = 21,00,000 - 5,25,000 - 1,75,000
Capital + Reserves & Surplus = Rs 14,00,000
Capital to Reserves = 5:2
Capital = Rs 10,00,000
Reserves = Rs 4,00,000
Balance Sheet of AB Co. as on 31.12.2009
Particulars
Credit Amount (Rs)
Particulars
Debit Amount (Rs)
Shareholders
Funds
Capital
Reserves
Rs 14,00,000
Fixed Assets
Rs 10,50,000
Current Assets
Debtors
Stock of raw
material
Finished Goods
Cash (B.f.)
Rs 10,50,000
Rs 3,50,000
Rs 2,10, 000
Total Assets
Rs 21,00,000
Current Liabilities
Long Term Debt
Total Liabilities
Rs 10,00,000
Rs 4,00,000
Rs 5,25,000
Rs 1,75,000
Rs 21,00,000
Rs 3,15,000
Rs 1,75,000
Q.2 From the following particulars prepare the Balance Sheet of A Ltd.:
Current Ratio
1.50
Current Assets/Fixed Assets
1:2
Fixed Assets to turnover
1:1
Gross Profit
25%
Debtors Velocity
2 months
Creditors Velocity
2 months
Stock Velocity
3 months
Debt equity ratio
2:5
Working Capital
Rs. 2,00,000
Solution:
Working Capital = Current Assets Current Liabilities = Rs 2,00,000
Current Ratio = Current Assets / Current Liabilities
=> Current Assets = Rs 6,00,000
=> Current Liabilities = Rs 4,00,000
Current Assets to Fixed Assets = 1: 2
Fixed Assets = Rs 12,00,000
Total Assets = Total Liabilities = Rs 18,00,000
Fixed Assets to Turnover = 1:1
Turnover = Sales = Rs 12,00,000
Gross Profit = 25* Sales = Rs 4,00,000
Debtors Velocity = 2 months
Debtors = 12,00,000 /12 *2 = Rs 2,00,000
Creditors Velocity = 2 months
Creditors = Rs 9,00,000 /12 * 2 = Rs 1,50,000
Stock Velocity = 3 months
Stock = Rs 9,00,000 /12 * 3 = Rs 2,25,000
Debt to Equity Ratio = 2: 5
& Debt + Equity = Total Liabilities Creditors = 18,00,000 4,00,000 = 14,00,000
Debt = Rs 4,00,000
Equity = Rs 10,00,000
Balance Sheet of A Limited
Particulars
Credit Amount (Rs)
Particulars
Debit Amount (Rs)
Equity
Rs 10,00,000
Fixed Assets
Rs 12,00,000
Current Liabilities
Long Term Debt
Total Liabilities
Rs 4,00,000
Rs 4,00,000
Rs 18,00,000
Current Assets
Debtors
Stock
Cash (B.f.)
Rs 6,00,000
Rs 1,50,000
Rs 2,25, 000
Rs 2,75,000
Total Assets
Rs 18,00,000
Q.3 From the following information, you are required to prepare a Balance Sheet:
Current Ratio
1.75
Liquid Ratio
1.25
Stock Turnover ratio (Closing Stock)
Gross profit ratio
25%
1.50 months
Reserves and surplus to capital
0.20
Turnover to fixed assets
1.20
Fixed assets to net worth
1.25
Sales for the year
Rs. 12,00,000
Solution:
Sales (Turnover) = Rs 12,00,000
Turnover to Fixed Assets = 1.2
Fixed Assets to Networth = 1.25
Networth = Rs 8,00,000 = Reserves & Surplus + Capital
Gross Profit = 25 * Sales = Rs 3,00,000
Cost of Goods Sold (COGS) = Sales Gross Profit
Stock Turnover ratio = 9
Stock = 9,00,000/9 = Rs 1,00,000
Debt Collection Period = 1.5 Months
Debtors = 12,00,000/12*1.5 = Rs 1,50,000
Reserves & Surplus to Capital = 0.2
Reserves & Surplus = Rs 1,33,333
Current Ratio = Current Assets / Current Liabilities = 1.75
Liquid Ratio = (Current Assets Stock ) / Current Liabilities = 1.25
(1.75 CL 1,00,000) / CL =1.25
Current Assets = Rs 3,50,000
Total Assets = Fixed Assets + Current Assets = Rs 13,50,000
Long Term Liabilities = Total Liabilities Current Liabilities Networth
Long Term Liabilities = 13,50,000 2,00,000 8,00,000 = Rs 3,50,000
Balance Sheet
Particulars
Credit Amount (Rs)
Particulars
Debit Amount (Rs)
Networth
Capital
Reserves & Surplus
Rs 8,00,000
Rs 6,66,667
Rs 1,33,333
Fixed Assets
Rs 10,00,000
Rs 2,00,000
Rs 3,50,000
Current Assets
Debtors
Stock
Cash (B.f.)
Rs 3,50,000
Rs 1,50,000
Rs 1,00, 000
Rs 1,00,000
Rs 13,50,000
Total Assets
Rs 13,50,000
Current Liabilities
Long Term Debt
Total Liabilities
Q. 4 Mr. Desai intends to supply goods on credit to A Ltd. and B Ltd. The relevant financial data
relating to the companies for the year ended 30th June, 2009 are as under:
A Ltd.
B Ltd.
Stock
8,00,000
1,00,000
Debtors
1,70,000
1,40,000
30,000
60,000
Trade Creditors
3,00,000
1,60,000
Bank overdraft
40,000
30,000
Creditors for expenses
60,000
10,000
Total purchases
9,30,000
6,60,000
Cash purchases
30,000
20,000
Cash
Advice with reasons, as to which of the companies he should prefer to deal with
Solution:
Financ
ial
Ratio
A Ltd
B Ltd
Credit =(9,30,000-30,000)/3,00,000
Turnov =3
er
=(6,60,000-20,000)/1,60,000
Credit
Payme
nt
Period
4 Months
3 Months
Curren
t Ratio
=(8,00,000+1,70,000+30,000)/(3,00,000+
40,000+60,000)
=(1,00,000+1,40,000+60,000)/(1,60,000+
30,000+10,000)
=2.5
=1.5
=(1,70,000+30,000)/( 3,00,000+60,000)
=0.56
=(1,40,000+60,000)/(1,60,000+10,000)
=1.18
Quick
Ratio
=4
Mr Desai should prefer to deal with B Ltd. Reasons are mentioned below: 1. Quick ratio of 1.18 of B Ltd is better than .56 of A Ltd.
2. Credit Payment Period of 3 months of B Ltd is better than 4 months of A Ltd.
3. Current ratio of 2.5 of A Ltd is better than 1.5 of B Ltd.
Since stock can not be converted into cash quickly, quick ratio and credit payment period of
B Ltd are more important in view of requirement of Mr Desai. Therefore, he must choose B
Ltd for dealing.
Q.5 The following is the Trading & Profit & Loss A/c of X Ltd. As on December 31, 2008:
Trading & P&L Account (31.12.2008)
Opening Stock
1,30,000 Cash Sales
Purchases
4,20,000 Credit Sales
G.P.
60,000 Stock
Depreciation
13,100 G.P.
G. Expenses
20,900
Directors Fees
10,000
N.P.
16,000
80,000
3,20,000
2,10,000
60,000
60,000
60,000
Balance Sheet as at 31st December, 2008

Share Capital
Profit & Loss A/c
Creditors
Bank overdraft
3,60,000 Fixed Assets
2,05,600
24,600 Stock
2,10,000
1,40,000 Debtors
1,60,000
51,000
5,75,000
5,75,000
1. The rate of stock turnover is to be doubled.

2. Stock is to be reduced by Rs. 60,000 by the end of the financial year.
3. The ratio of cash sales to Credit sales is to be doubled.
4. Directors remuneration are to be increased by Rs. 15,000.
5. Rate of gross profit to sales is to be increased by 331/3%.
6. The ratio of trade creditors to closing stock and the ratio of debtors to credit sales will remain
the same as in the year just ended.
7. General expenses and depreciation are to remain the same.
Draft budgeted Trading and Profit and loss account and balance sheet, assuming that the
objectives had been achieved.
Solution:
Financial figure/ ratio
Existing figure / ratio (2008)
Desired figure /
ratio (2009)
Stock turnover
=3,40,000*2/(2,10,000+1,30,000) 4
=2
Stock
2,10,000
1,50,000
Cash Sales / Credit Sales
1:4
1:2
Directors Remuneration
10,000
25,000
Gross Profit to Sales
15%
20%
Trade Creditors to Closing Stock
=1,40,000/2,10,000
=66.67%
66.67%
Debtors to Credit Sales
1:2
1:2
General Expenses
20,900
20,900
Depreciation
13,100
13,100
Solution:
Since Stock in 2009 = Rs 1,50,000
Cost of goods sold = Rs (2,10,000+1,50,000)/2 * 4 = Rs 7,20,000
Let Sales be x
=> 20%x = x 7,20,000
=> Sales = Rs 9,00,000
=> GP = Rs 1,80,000
=> Cash Sales = Rs 3,00,000
=> Credit Sales = Rs 6,00,000
=> Debtors = Rs 3,00,000
Trade Creditors = 1,50,000 *66.67% = Rs 1,00,000
7,20,000 = 2,10,000 + Purchases 1,50,000
=> Purchases = Rs 6,60,000
Drafted Trading & Profit and Loss Account and Balance Sheet: Trading & P&L Account (31.12.2009)
Opening Stock
2,10,000 Cash Sales
3,00,000
Purchases
6,60,000 Credit Sales
6,00,000
G.P.
1,80,000 Stock
1,50,000
Depreciation
13,100 G.P.
1,80,000
G. Expenses
20,900
Directors Fees
25,000
N.P.
1,21,000
1,80,000
1,80,000
Balance Sheet as at 31st December, 2009

Share Capital
Profit & Loss A/c

24,600 Stock
2,05,600
1,50,000
Net Profit
Bank overdraft
Creditors
1,21,000 Debtors
36,900 Less : Depreciation
3,00,000
-13,100
1,00,000
6,42,500
6,42,500
Q.6 You are given the following figures worked out from the profit and loss account and balance
sheet of Z Ltd. relating to the year 2008. Prepare the balance sheet.
Fixed Assets (net after writing off 30%)
Rs. 10,50,000
Fixed Assets Turnover ratio
Finished goods turnover ratio
Rate of gross profit to sales
25%
Net profit (before interest) to sale
8%
Fixed charges cover (debenture interest 7%)
1 months
Material consumed to sales
30%
Stock of raw materials (in terms of number of months consumption)
Current ratio
2.4
Quick ratio
1.0
Reserves to capital
0.20
Solution:
Sales (Turnover) = Rs 21,00,000
Gross Profit = Rs 5,25,000
Finished Goods = Rs 2,62,500
Net Profit before interest = Rs 1,68,000
Annual Interest Payments = Rs 21,000
Net Profit after interest = Rs 1,47,000
Debentures (7%) = Rs 3,00,000
Debtors = Rs 2,62,500
Material Consumed = Rs 6,30,000
Stock of Raw Material = Rs 4,20,000
Current Ratio Quick Ratio = Stock / Current Liabilities = 1.4
Stock = 2,62,500 + 4,20,000 = 6,82,500
Current Assets = Rs 11,70,000
Capital + Reserves & Surplus = 22,20,000 4,87,500 -3,00,000 = Rs 14,32,500
Reserves & Surplus = Rs 2,38,750
Balance Sheet of Z Ltd as at 31st December, 2008

Capital
Reserves & Surplus

Profit & Loss A/c b/d
Current Assets
10,50,000
11,70,000
91,750
Net Profit after interest
1,47,000 Debtors
2,62,500
7% Debentures
3,00,000 Stock of Raw Materials
4,20,000
Finished Goods
Current Liabilities
4,87,500 Cash (B. f.)

22,20,000
Net Profit is part of Reserves & Surplus.
2,62,500
2,25,000
22,20,000
Q.7 The summarized Balance Sheet of X Ltd. as at 31st December 2008 and its summarized
Profit and Loss Account for the year ended on that date, are as follows. The corresponding
figures of the previous year are also shown:
Balance Sheet
Liabilities
2008
2007
Assets
2008 2007
(Rs. in lakhs )
Share
capital
60,000 shares of
Rs. 100 each
60.00
Fixed Assets
At
cost
less
60.00 Depreciation:
29.25
Property
24.00 Plant
15.00
15.00
Reserve & Surplus

8% Debenture
(Rs. in lakhs)
Current Liabilities
& Provisions :
21.00
61.50
18.00
48.00
82.50
66.00
Current Assets -
Sundry Creditors
45.75
24.00 Stock of finished

goods
42.75
31.50
Provision
Taxation
13.50
10.50 Sundry Debtors
41.25
30.00
1.50
9.00
for
Proposed
Dividend
Bank
4.50
3.00
63.75
Total :
168.00
85.50
136.50
168.00 136.50
Trading & Profit and Loss Account

2008
2007
(Rs. in lakhs)
Cost of Sales
162.00 135.00 Sales (all credit)
Gross Profit C/d
63.00
Overhead Expenses
43.50
30.00 Gross Profit b/d
Net Profit before taxation
19.50
15.00
63.00
45.00
Dividend-paid
Proposed
2007
(Rs. in lakhs)
225.00
180.00
225.00
180.00
63.00
45.00
63.00
45.00
19.50
15.00
45.00
225.00 180.00
Provision for taxation
2008
8.25
6.30 Net profit b/d
6.00
4.50
and
Surplus for the year

carried to Balance Sheet
5.25
4.20
19.50
15.00
19.50
15.00
You are required to interpret the above statement using significant accounting ratios.
Solution:
Following are the five steps in examining the performance of the company in the year 2008 as
compared to the year 2007.
Step 1: Calculation of the ratios
Financial Ratio
Return
on
Employed (RoCE)
2008
Capital =(19.5+1.2)/(60+29.25+15)
Net Profit Ratio (NPR)
2007
=(15+1.2)/(60+24+15)
=19.86 %
=16.36%
=19.5/225*100%
=8.67%
=15/180*100%
=8.34%
Capital Employed Turnover =225/(60+29.25+15)

Ratio (CETR)
=2.16
=180/(60+24+15)
Current Ratio (CR)
=85.5/63.75
=70.5/37.5
=1.34
=1.88
=1.82
Stock Turnover Ratio (STR) =162/42.75

=3.79
=135/31.5
=4.29
Average Collection Period =41.25/225*365

(ACP)
=66.91 Days= ~67 days
=30/180*365
Debt / Equity Ratio (D/E)
=15/89.25
=15/84
=.17
=.18
=11,25,000/60,000
=18.75
=8,70,000/60,000
=14.5
Earning per share (EPS)
=60.83 Days = ~61 days
Dividend payout ratio (DPS =(6,00,000/60,000)/18.75*100% =(4,50,000/60,000)/14.5*100%

/ EPS)
=53.33%
=51.72%
Gross Profit Ratio (GPR)
=63/225*100%
=45/180*100%
=28%
=25%
2. Comment on Individual Ratios: 1. Return on Capital Employed (RoCE) has increased from 16.36% in 2007 to 19.86%
in 2008. This is achieved with the help of increased profitability on sales and more
efficient utilization of capital employed.
2. Net Profit Ratio (NPR) has increased from 8.34% in 2007 to 8.67% in 2008. This is
achieved with the help of increased profitability on sales.
3. Capital employed turnover ratio (CETR) has increased from 1.82 in 2007 to 2.16 in
2008. This is increased with the help of more efficient use of capital employed.
4. Current ratio (CR) has decrease to 1.34 in 2008 from 1.88 in 2007. This indicates that
Working Capital Management (WC Mgt) of the company is not showing healthy signs.
The reason for decline in CR is financing fixed assets out of working capital (WC).
During the year, there is substantial increase in fixed assets without any efforts to raise
long term funds. Long term funds have increased by 5.25 lacs on account of retained
profits.
5. Stock Turnover ratio (STR) has decreased from 4.29 in 2007 to 3.79 in 2008. This
indicates that Stock is not being efficiently utilized.
6. Average Collection Period (ACP) has increased to 67 days in 2008 from 61 days in
2007. This indicates poor collection as compared to previous year.
7. There is no noticeable change in debt/equity ratio. The debt/equity ratio (.18) of the
company is low which indicates presence of less long term debt as compared to equity
capital.
8. Earning per share (EPS) has increased to 18.75 in 2008 from 14.5 in 2007 (growth of
29.31% over previous year) indicates healthy growth of EPS.
9. Dividend payout ratio (DPR) has increased to 53.33% in 2008 from 51.72% in 2007
which is not a healthy sign in view of difficult working capital situation of the company.
Dividend per share (DPS) has increased to 10 in 2008 from 7.5 in 2007.
10. Gross profit ratio (GPR) has increase to 28% in 2008 from 25% in 2007 which
indicates 12% y/y growth in gross profit ratio.
Step 3: Critical Appraisal
The profitability of the company increased in account of increase in sales. Overheads have
increased considerably.
Working capital management is not satisfactory. Dividend payout should not have been so high
in view of working capital problems.
Step 4: Overall Performance
Overall performance of the company is satisfactory (RoCE has improved)
Step 5: Suggestion for the future
1. Try to improve working capital situation.
2. Try to control the overheads.
3. Funds may be raised through debentures, long term loans etc as the companys
debt/equity ratio is low. Such funds may be used to improve working capital situation and
also for expansion and diversification of the business.
Q.8 X Ltd. has been existence for two years. Summarized Balance Sheets as on 31st
December, 2007 and 31st December, 2008 are given below:
Balance Sheet (Figures in lakhs of rupees)
Liabilities
Equity shares of Rs. 100 each
2008
2
2007 Assets
2 Fixed Assets (Less Dep.)
2008
2007
4.16
3.96
Reserves
.20
.40 Stock
.60
1.20
Profit & Loss A/c
.28
.04 Debtors
.80
1.60
.60
.04
6.16
6.80
Loans on Mortgage
2.20
Bank overdraft
1.60 Cash and Bank Balances

.40
Creditors
.60
1.80
Provision for Taxation
.68
.26
Proposed Dividend
.20
.30
6.16
6.80
You are also given the Profit and Loss Account of the Company for the two years.
Profit & Loss Account (Figures in lakhs of rupees)
Interest on Loan
2008
2007
.048
.096 Balance B/F
Directors
Remuneration
.20
Profit for the year after

running
costs
&
.60 Depreciation
Provision for Taxation
.68
.26
Dividends
.20
.30
Transfer to Reserve
.20
.20
Balance C/F
.28
.04
1.608
1.496
Total Sales amounted to Rs. 12 lakhs in 2007 and Rs. 10 lakhs in 2008.
Make a through overall analysis of this company.
2008
2007
.28
1.608
1.216
1.608
1.496
Solution:
Step 1: Calculation of Financial Ratios
S. No.
1
Financial ratio
2008
Return on Capital Employed =(1.608(RoCE)

.2)/(2+.2+.28+2.2)
2007
=(1.216-.3)/(2+.4+.04+1.6)
=22.67%
=30.09%
2
Net Profit Ratio (NPR)
=.68/10*100%
=6.8%
Capital Employed Turnover =10/(2+.2+.28+2.2)

Ratio (CETR)
=2.14
=.54/12*100%
=4.5%
=12/(2+.4+.04+1.6)
=2.97
Current Ratio (CR)
=(.6+.8+.6)/(.6+.68+.2) =(1.2+1.6+.04)/(1.8+.26+.3)
=1.35
=1.20
Stock Turnover Ratio (STR)
=(10-1.608)/.6
=13.99
Average
(ACP)
Collection
=(12-1.216)/1.2
=8.99
Period =.8/10*365
=1.6/12*365
=29.2 Days
=48.67 Days
Debt / Equity Ratio (D/E)
=2.20/2.48
=.89
=1.6/2.44
=.66
Earning per share (EPS)
=68,000/2000
=54,000/2000
=34
=27
9
10
Dividend payout ratio (DPS / =.2/.68

EPS)
=29.41%
=.3/.54
Gross Profit Ratio (GPR)
=1.216/12*100%
=10.13%
=.1.608/10*100%
=16.08%
=55.56%
Step 2: Comments on individual ratios

1. Sales have decreased to 10 lacs in 2008 from 12 lacs in 2007. This is not a positive
signal since topline has decreased by 16.67% y/y.
2. Return of Capital Employed (RoCE) has increased by 32.73% to 30.09% in 2008
from 22.67% in 2007. This is attributed to higher return on sales and but less efficient
utilization of capital employed.
3. Net Profit Ratio (NPR) has increased to 6.8% in 2008 from 4.5% in 2007. This is a
healthy signal since profitability on sales has increased 51.11% y/y basis.
4. Capital Employed Turnover Ratio (CETR) has decreased to 2.14 in 2008 from 2.97
in 2007. This is not a healthy signal since CETR has decreased by 28%.
5. Current Ratio has increased by 12.5% to 1.35 in 2008 from 1.20 in 2007.. This
indicates that current assets have increased more w.r.t. current liabilities and is a healthy
signal.
6. Stock Turnover Ratio (STR) has increased to 13.99 in 2008 from 7.08 in 2007 which
is a healthy signal since stock activity has improved compared to cost of goods sold.
7. Average Collection Period (ACP) has decreased to 29.2 days from 48.67 days which
indicates that collection of credit sales has improved as compared to previous year and
cash is collected faster.
8. Debt / Equity Ratio has increased to .88 in 2008 from .66 in 2007 which indicates that
company has raised long term debt (Mortgage debt) to finance its activities in the year
2008.
9. Earning per share (EPS) has increased to 34 in 2008 from 27 in 2007 which is a
healthy sign since EPS growth is a strong signal for investors and creditors for the
business.
10. Dividend payout ratio (DPR) has decreased to 29.41% in 2008 from 55.56% in 2007
which indicates that company prefers to retain its profits for future expansions.
11. Gross Profit Ratio (GPR) has increased to 16.08% in 2008 from 10.13% in 2007
which is 58.74% increase on y/y basis. This indicates that overall profitability of the
business has significantly improved.
Step 3: Critical Appraisal
It is noticed that sales have decreased but all other performance indicators for the company have
significantly improved over previous year. 32.73% increase in RoCE is surely a very good
performance indicator of increased profitability. CETR decreased indicates less efficient
utilization of resources. Improved current ratio, lower collection period and higher stock turnover
ratio indicated enhanced activity in many aspects of the business. It seems that the firm is poised
for rapid growth path.
Step 4: Overall Performance
The overall performance of the company is good. Since all major indicators are better but sales
and CETR have decreased over previous year.
Step 5: Suggestions for the future
The company should improve the utilization of resources. It is required to improve turnover to
increase topline growth.

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Assignment I - Journal

Q.1 Journalize the following relating to April 2009:

1. R. started business with

2. He purchased furniture for

3. Paid salary to his clerk

Q.3 Journalize the following transactions.

15-Dec-08 Amrit A/c Dr

Q 4 Transactions of Ramesh for April are given below. Journalize them.

Ramesh started business with

30-Apr Cash A/c Dr

1-Jan To Balance b/d

5-Apr To Bank A/c

1-Jan To Balace b/d

4-Jan To Vijay A/c

To Plant & Machinery

15-Jan To Rahim A/c

18-Jan To Ram A/c

1-Jan By Purchase A/c

31-Jan By Balance c/d

1-Jan To Balance b/d

31-Jan By Balance c/d

1-Jan To Balance b/d

1-Jan To Cash A/c

1-Jan To Discount A/c

31-Jan By Balance c/d

1-Jan To Balance b/d

1-Jan To Balance b/d

4-Jan By Cash A/c

4-Jan By Discount A/c

1-Jan To Balance b/d

1-Jan By Balance b/d

1-Jan By Purchase A/c

31-Jan To Balance c/d

By Plant & Machinery

31-Jan To Balance c/d

31-Jan To Balance c/d

12-Jan By Rahim A/c

18-Jan By Cash A/c

12-Jan To Sales A/c

15-Jan By Bad Debt A/c

Plant & Machinery A/c

8-Jan To Mukesh A/c

8-Jan To Cash A/c

31-Jan By Balance c/d

Bad Debt A/c

15-Jan To Rahim A/c

By Bad Debt A/c

18-Apr To Purchase returns A/c

1-Apr By Balance b/d

4-Apr By Purchase A/c

17-Jan By Purchase A/c

Assignment III Trial Balance

10,000 By Furniture A/c

25,000 By Salaries A/c

500 By Shyams A/c

3,000 By Balance c/d

2,500 By Balance c/d

21,000 By Purchases A/c

To Cash A/c (Cash Purchases)

1,000 By Balance c/d

Purchases Returns Account

500 By Sundries as per Purchases

To Sales A/c (Credit Sales)