Financial Accounting & Analysis

June 2021

1. Discuss and analyze the following transactions for X Ltd, using the concept of accounting
equation (Assets, Liabilities and Equities).

1. Purchased Furniture for Rs675000

2. Capital Introduced by the business Owner by depositing 12 Lakhs in the bank account

3. Goods purchased on credit from Aman Enterprises for Rs105000

4. Goods sold on credit for Rs 400000. The cost of the goods sold was Rs 300000

5. Purchased goods from Sneha Enterprises for Rs 600000 and made the payment from the
business's bank account (5*2 = 10 Marks)

Ans 1.

Introduction

The accounting condition is known as the establishment of the twofold district accounting
structure. The net assets are boggling from the level of the connection's liabilities and money
related embellishments' worth, as seen on its bookkeeping report. Each part made on the need
side has figuring out for access (or joining) on the credit side. The money related state of each
getting, epic or little, is gotten by two standard bookkeeping report parts: assets and liabilities.
The money related record's third picture name is owners' worth, which is other than called
financial extra things' worth. The state of accounting depicts how these three epic zones are
related to one another—the state of accounting as the resource report condition or the key
accounting condition.

Concept and Application

The state of accounting states that the improvement of an interest's assets, liabilities, and worth.
To put it another way, a collusion's worth is appearing contrastingly meandering from the level
 of its assets less its liabilities. This definition is the standard side compensation a twofold
domain, and it is a way to deal with oversee manage administer direct control direct control
direct control direct control direct control direct control see and approach spending follows. The
condition is:

Asset = Liabilities + Owner's Equity

1. Asset: Anything that drives forward through a coronary squashed idea or a resource that
changes into cash is proposed as an asset. Individuals, affiliations, and states own properties. An
asset may pass on pay for a business, or it may keep up the relationship in any way by having the
responsibility concerning asset.

2. Liability: A danger is a responsibility that an individual or the undertaking owes to

another get-together, all around as property. Liabilities are settled after some time by exchanging
cash related benefits like capital, things, or affiliations. Liabilities join duties, advance head
liabilities, stores, open occupations, keeps up, guarantees, and cleared expenses, all gave a record
of one side of the money related record.

3. Owner's Equity: Owner's worth applies to a business visionary's stake of the firm, in like
course as the valuation of the improvement's properties. The degree of capital the owner has set
into the firm short the money the owner has taken out.

Award, us to figure out to pull out the state of the records for X Ltd

Particulars Assets = Liability + Owner’s Equity Total

1. Purchased Furniture for Furniture: Creditors: 6,75,000

Rs 6,75,000
6,75,000 6,75,000

2. Capital Introduced by Furniture: Creditors: Capital: 18,75,000

the business Owner by
6,75,000 6,75,000 12,00,000
depositing 12 Lakhs in
the bank account. Bank:

12,00,000

3. Goods purchased on Furniture: Creditors: Capital: 19,80,000

 credit from Aman 6,75,000
Enterprises for
Bank: 6,75,000 12,00,000
Rs105000
12,00,000 Creditors (Aman
Enterprises):
Inventory:
1,05,000
1,05,000

4. Purchased goods from Furniture: Creditors: Capital: 19,80,000

Sneha Enterprises for Rs
6,75,000 6,75,000 12,00,000
600000 and payment
made from the Bank: Creditors (Aman
business's bank account Enterprises):
12,00,000 – 6,00,000
1,05,000
Inventory:

1,05,000 + 6,00,000

5. On credit the goods were Furniture: Creditors: Capital: 20,80,000

sold for Rs 400000. The
6,75,000 6,75,000 12,00,000 + 1,00,000
cost of the goods sold
was Rs 300000 Bank: Creditors (Aman
Enterprises):
12,00,000 – 6,00,000
1,05,000
Inventory:

1,05,000 + 6,00,000 –
3,00,000

Debtor:

4,00,000
Total Asset = 20,80,000

Total Liability = 7,80,000

Owner’s Equity = 13,00,000

Clarification of bookkeeping of condition:

1. Furniture has been bought worth Rs. 6,75,000 as nothing is proposed on the off chance that it
was purchased on money or credit, we have seen that the furniture has been bought using a
disturbing astounding new development. A couple of pieces of the condition by adding credit
heads worth Rs 6,75,000.

2. In the going with the condition, the proprietor of the business presents capital worth Rs.
12,00,000, the tumbling has been kept into the bank, and that is the clarification the Asset side
has been related by presenting the Bank piece, and the Owner's Capital has been left on
behind by Rs.12,00,000 on the other area.

3. In the third condition, X Ltd. has bought stock worth Rs. 1,05,000 from Aman Undertakings
got, this will affect both the side of the condition. The resource side has been influenced by the
bewildering occasion of modelers worth Rs. 1,05,000, and for the Liability side, it has been
affected by banks worth 1,05,000.

4. In the fourth condition, Goods has been bought from Sneha Enterprises for Rs 6,00,000. Spot
made using the bank. This will affect from a general viewpoint the Asset space. As the piece has
been made through the bank, the bank full scale will be decreased by Rs. 6,00,000. In like
manner, the stock will interface by Rs. 6,00,000.

5. In the fifth condition, the thing have been sold using a Mastercard worth Rs. 3,00,000 for Rs.
4,00,000. This will affect the Asset side correspondingly as the Owner's Equity of the
bookkeeping condition. As the things have been sold using a Visa, it will add up to the borrower
by 4,00,000, and the stock will diminish by Rs. 3,00,000 as the expense of things sold is all
through worth Rs. 3,00,000. As we can see that the thing has been sold on the possible
improvement of Rs. 1,00,000, this will get added to the proprietor's capital.

Conclusion
Fittingly, the above bookkeeping condition is for X Ltd. as demonstrated by the bookkeeping
rules, which really shows that one exchange continually impacts more than one record as showed
up by the twofold space structure.

2. Love Doddle is a gifting enterprise of Ms. Dorati. The enterprise generates inflows by
arranging gift hampers for the customer's loved ones. The inflows arises from the sale of
gift hampers Rs 505000 and from bank interest, dividend receipt Rs4200. Ms. Dorati is
confused on how to record these inflows. She would like to understand from you about the
concepts Revenue from operation and other income, so that she can record the information
so as to prepare the profit and loss statement of the enterprise. Define, share examples, and
elaborate on your understanding towards the terms Revenue from Operation and Other
Income (10 Marks)

Ans 2.

Introduction

Working compensation is the remuneration that an association produces from its stunning
business works out.

• Operating compensation is passed on by a structure central business works out.

• Operating compensation can make year-over0year to review the strength of an alliance and its
activities.

• Operating compensation ought to be shed out from non-working compensation that happens
from impacting, stupefying, or one-time occasions.

Working remuneration and pay are head bookkeeping finds that show that a business makes
some capital from the improvement of the alliance. Notwithstanding, the two figures are taken
out structures for giving a way of thinking's benefits, and their appraisals require amassed cutoff
conditions and credits. The compensation given by a union's central activities is proposed as
working compensation. The specific improvement that produces operational pay changes. Think
about a retailer: a retailer's working pay from the chance of things. The pay from the
improvement of an expert is given by passing on clinical benefits.
Other cash is gotten from endeavors that are detached to a partnership's key part. After a short
time, the two plans and working remuneration are beast in viewing at whether as an affiliation is
progressing unquestionably. Until any expenses are avoided, pay is the net capital got by a
business from the selling of its thing or association. In the wake of deducting a partnership's
norm, highlighting expenses and liabilities, working benefits is the net advantage. Seeing
working compensation from complete compensation is goliath considering the way that it gives
enormous data about the cutoff and benefit of an alliance's key business attempts.

Exonerating how working compensation is recorded, a couple of affiliations may endeavor to

cover reduces in working compensation by obliging it with non-working compensation.
Understanding and seeing the wellsprings of pay is tremendous in contemplating the strength of
a firm and its activities.

Concept and Application

The cash that the association makes from business-related undertakings is known as pay or plans.
A titanic piece of pay for most affiliations comes from selling their things and affiliations. Pay
would not mean the capital the course of action has at some conflicting time. Since deducting
costs, advantage tells the capital the union gets or loses. One should utilize their strategies as a
beginning stage to check your advantage or if all else fails increment/impeded doubt. Deduct
your full scale costs from your uncommon remuneration to show up at your advantage.

Pay is of two sorts:

1. Operating Revenue

2. Non-Operating Revenue

Pay from Operation:

The compensation passed on by an affiliation's enormous key system is known as working

compensation. For say, a retailer's working compensation comes from stock buys, and an expert's
working compensation comes from the fix thought they offer. Working remuneration impacts
relying on a particularly affiliation or area. Working compensation should be seen from when in
doubt pay since it offers head information about the benefit and execution of the interest's critical
market progress. A couple of affiliations can set working and non-working compensation to
cover the diminishing in pay. By checking on the abundancy of the coalition and its exercises,
seeing plans streams will help the relationship with going.

In the given case, as Love Doddle is a gifting endeavor of Ms. Dorati, their standard working
improvement for the business is gifting, and that is the clarification the remuneration that has
been made utilizing slanting toward hampers worth Rs. 5,05,000 will be treated as the pay from
working exercises and as needs be named as the "Pay." This is called Revenue from Operation.

Other Income:

Other remuneration can in like way be called non-working pay, which is pay passed on using an
alliance's activities that isn't the standard business. Such things don't occur reliably, and they can
be tremendously incredible. Any remuneration that has been made by the union, not from the
working exercises of the connection, these positions are known as the other pay. As the standard
working exercises do stay away from these to the alliance, which is the explanation it is known
as the other pay. Rental pay passed on by a garments washer producer by subleasing void office
space to an executed, for instance, will be recorded as other advantage on the getting show.
Benefit pay, benefits by the selling of deals, and gains on new cash exchanges are events of
different sorts of pay that are everything seen as known as other remuneration. Such an exchange
that is named different benefits changes by a space. On the off chance that a business is to keep
above water, it should pass on working remuneration. Rising working plans would tie the
interest's head for outside supporting.

In the given case, as Love Doddle is a gifting try of Ms. Dorati, their standard improvement of
progress for the business is gifting, the pay of Rs. 4,000 200 which has come from the bank pay,
advantage receipt will be treated as the other pay.

The record of the above pay ought to be done in the join course by Ms. Dorati for recording the
benefit and weight check of the undertaking

Particulars Note Amount in Rs.

1. Returns from the Operations (a) 5,05,000

 2. Other Revenue (b) 4,200

Total Income: 5,05,000 + 4,200 = 5,09,200

Notes to Accounts:

(a) Revenues from the Operations:

The inflow of cash from selling the gift hampers = 5,05,000

(b) Other Income:

Pay from Interest got from bank and benefit got = 4,200

Conclusion

The straightforwardness of the information about the compensation made by the coalition should
each time uncover in the not+es to accounts so the associates consider each pay that has been
made by the collusion. Ms. Dorati should make the information about the Revenue from
Operation and Other Income in the above manner by uncovering all the huge information for
their contributed people

3. The following information is given with respect to the ratios of two companies

a. Define the concepts of Current and Quick ratio’s and also, reflect on your understanding
towards the financial performance of the companies by looking to the above information
(2marks for defining and 3 marks for interpretation and reasoning) (5 Marks)

Ans 3a.

Introduction
The Current Ratio is that follows a trick's energy to give present second or one-year duties. It
shows to cash-related advancing worked with portrayed made depicted worked with made point
subject planned made arranged specialists and experts how any business can use existing assets
on its spending plan sheet to give down current responsibility and various obligations. The Quick
Ratio is an improvement's capacity to satisfy transient commitments like that its shuddering
liquidity status.

Concept and Application

The Quick Ratio is a more standard metric when bound and the current degree, which sees all to
be assets as current obligation joining. The Quick Ratio follows an arrangement ability to
interface up its current need without selling things or getting extra financing. The more certain
the figure, the more discernable the interest's exhausted cutoff, the truly unassuming the degree,
the more it is that the arrangement would encounter bother covering its duties.

Understanding:

As the current degree picks the key of the business to settle passing liabilities, with under 1.0
current degree shows that the advancement's capital isn't disturbing to settle the transient
responsibilities if the by a wide edge of the commitments were standard together during the time
stretch. An energy level of more than 1 tracks down that the firm has amazing cash to keep
above water in the near term.

In like way, in the given case, Aman Ltd. has a current level of 2:01, which is just 2. This shows
that Aman Ltd's. capacity to settle his shuddering obligations is acclaimed in case they were head
totally. A current level of 2 shows that for every 1 rupee Aman Ltd. has 2 rupees in hands to pay.
This is a positive sign for the plot in like manner concerning the additional things. Absolutely
when we look at Roger Ltd., the current level of Roger Ltd. is 1.60:1, which demonstrates that
for every 1 rupee to be paid, Roger Ltd. has 1.60 rupees to settle.

Sound degree weaves unflinchingly the liquid assets. For Aman Ltd., the update degree is 1.35:1.
This shows that their liquid assets are in a sensible condition to settle their duty. This shows that
for every 1 rupee of responsibility, it has 1.35 rupees to settle. For Roger Ltd., the standard force
degree is 1:1. This shows that for every 1 rupee of obligation, it has 1 rupee to settle.
Conclusion

Investigating everything, we can reason that Aman Ltd. is performing unequivocally better
veered from Roger Ltd. from the Current Ratio and Quick Ratio viewpoint as Aman Ltd. has
higher rates when bound and Roger Ltd.

3b. Define the terms- Return on Investment and Debt equity ratio and also, reflect on your
understanding towards the financial performance of the companies (2marks for defining
and 3 marks for interpretation and reasoning) (5 Marks)

Ans 3b.

Introduction

Return on Investment (ROI) is a giving evaluation for doing relate an endeavor's plentifulness or
cutoff, close by beating the epic updates of various hypotheses. The Return on hypothesis (ROI)
attempts to unequivocally pick the advantage made on a given pay as demonstrated by its
expense. Opening an advancement net danger from its money related improvement worth to get
the commitment to-respect (D/E) degree. These pieces of data can be found on the going through
structure sheet in its money related reports.

Concept and Application

Benefit from hypothesis is for taking a gander at and rate interests in various undertakings or
properties. While the Return on experience (ROI) is a sure totally and clear evaluation, it will not
think about the upkeep length or taking a break, and as necessities be, it may vindicate the
opportunity costs of utilization elsewhere. If all else is same, hazard hesitant cash related
embellishments would if all else fails consider lower returns over going toward less test.

The Debt to Equity (D/E) degree picks the money related impact of a strategy running. The D/E
degree is a key cutoff. It's a pointer of how much an undertaking relies on credits to back its
activities as opposed to totally had resources. During a corporate crisis, it pays stunning
cerebrum to the need of money related cover premium to pay each vindicated obligation.
Understanding:

Benefit from Investment is used by the cash related help and various accomplices to single out
the got out probability that they need to place assets into any premium or not. For Aman Ltd., the
Return on the theory is 15%, a sensible ROI is seen as 7% or more, so for Aman Ltd, the
standard types of progress of the endeavors are positive. For Roger Ltd., the ROI is 13%, which
is again beast for the cash related extra of Roger Ltd.

The Debt to Equity degree shows the degree of obligations used for the supporting when
appeared particularly not especially portrayed from the totally permitted worth. For Aman Ltd.,
the Debt to Equity degree is 2.5:1. This shows that it has a 2.5 rupees responsibility concerning
every 1 rupee. Taking a gander at everything, a DE level of 1 is seen as ensured, and a degree
more sure than two can be hazardous for the new turn of events. For Roger Ltd. 1.01, this shows
that for every 1 rupee of head worth, it has 1 rupee of commitment. This is seen as an ensured
degree.

Conclusion

Confining everything, we can figure that from the ROI viewpoint, Aman Ltd is performing better
showed up especially meandering from Roger Ltd, paying little notice to concerning DE degree,
Roger Ltd. is safer than Aman Ltd.