© PHI Learning Private Limited, New Delhi. 2017, All igs reserved. No part of this Instructor's Manual may be reproduced in any form by mimengraph or any other means or stored in an electronic or ether form. This Instrctor’s Manual is for use bythe instructor to whom iis isued and should not be made available to any ster perso, ‘The following additional information will be useful in making a decision: i. Industry norms for inventories Industry norms for credit 10 customers. ‘Age-wise analysis of inventories and receivables. iv. Credit rating y. Trend of financial ratios for the past five years. vi, Industry reports. Problem 12.14: Preparation of Statements from Incomplete Information ** #* 7 ‘Arogya Company Statement of Profit and Loss For the year ended August 31, 20X1 Reearks Net sales a Cost of goods sold Given Gross profit @ Selling and administrative expenses Given Profit before interest and tax Q) Interest expense @ Profit before tax o Income tax. © Profit ater tax Given Arogya Coatpany Balance Sheet, Atyust 31, 20N¢ Remarks Assets Non-current assets Property, plant and equipment 69,000 aay Non-current investments, 2,400 Given Current assets Inventories: 16,500 «2 Receivables 10,000 i) Cash and cash equivalents 1,500 Given Other current assets 600 Given Total current assets, 28,600 ay oO Equity and Lia Equity Equity share capital 28,000 Given Other equity 12,000 ©) 40,000 @ Non-current liabilities Long-term borrowings 21,000 Given Other long-term liabilities 17,000 Given Balance Sheet and Statement of Profit and Loss —Chapter 12 p_ 367© PHI Learning Private Limited, New Delhi. 2017. All sighs reserved. No pat of this Instructor's Manwal may be reproduced in any form by mimeograph or any other means or stored in an electonic or other form. This Instructor's Manual is for use by the instructor to whom itis issued and should not be made availble to any ster person, Current liabilities Trade payables 22,000 ao 8) 100,000 o Notes: (1) Sales = Profit after tax/Profit margin = %3,500/0.07 = %50,000 (2) Gross profit = Sales ~ Cost of goods sold = €50,000 ~ &33,000 = 817,000, {) Profit before interest and tax ~ Gross profit ~ Selling and administrative expenses 17,000 ~ 29,000 = %8,000 (4) Interest expense = Profit before interest and tax/Interest cover = %8,000/8 =@1,00() (5) Profit before tax = Profit before interest and tax ~ Interest expense = 38,000 71,000 = 27,000 (6) Income tax. = Profit before tax - Profit after tax = 27,000 ~ 83,500. (7) Total assets = Profit after tax/Return on assets = %3,500/0,035 liabilities and equity (8) Debt to equity = 15:1 2.5 x Shareholders’ equity =2100,000 Equity =%40,000 Total liabilities ~ 260,000 (9) Reserves and surplus = Shareholders’ equity ~ Shale‘Gapital = €49,090 -%28,000 =312,000 (10) Current liabilities = Total liabilities ~ Non-curi{ivliabilitie»2$00,000- 21,000 — 217,000 = 222,000 (11) Current assets = Current liabilities x Current ratio = 222,009% 1.3 = 828,600 (12) Inventories = Cost of goods sold “Inventory xumover = 235.0002 = %16.500 (13) Receivables = Net sales x average collestign petiod465= €50,000x 73/365 ~¥10,000 (14) Fixed assets ~ Total assets ~ Non-cur(@i.investments ~ Current assets ~ 100,000 — 32,400 ~ 828,600 = 869,000 Problem 12.15. Preparation of statetr iit from Ieotiplete Information # # # * # Alternative to Problem 12.14 Surat Compeny Statement of Profit and Loss Remarks Netsales a Cost of goods sold Q) Gross profit Q Selling and administrative expensés Given Profit before interest and tax « Interest expense Given Profit hefore income tax © Income tax. © Profit after tax oO P-368 Instructor's Manual to Accompany Financial Accounting: A Manegorial Perspective be© PHI Learning Private Limited, New Delhi. 2017. Al sighs reserved. No pat of this Instructor's Manwal may be reproduced in any form by mimeograph or any other means or stored in an elecienic oF ether form. This Instrctor’s Manual is for use by the instructor to whom iis issued and should not be made available to any ster person, Surat Company Balance Sheet, December 31, 20X4 Remarks Assets Non-current assets Property. plant and equipment 13,000 Given Non-current investments, 1,800 (4) Current assets Inventories 15,000 vey Receivables ed) Cash and cash equivalents Given Total current assets, (3) Given Equity and Liabilities Equity Equity share capital 29,500, Given Other equity 6,500, 0) 16,00 () Non-eurrent liabilities Long-term borrowings 3,004) Give Current liabilities Short-term borrowings ay Trade payables 2) (10) Given Notes: (1) Net sales = Total assets x Asset tumoyey—€40,000 x Z3 times = 792,000 (2) Gross profit= Net sales x Gross profi ha/gin = 89Z;090 x .15 =813,800 (3) Cost of goods sold ~ Net sales ~ Gross profit ~ 293,000 ~ 213,800 = 278,200 (4) Profit before interest and tax = Gris Profit — Selling and administrative expenses = 13,800 21,300 = 212,500 Profit befoftaanerest and tay ¥ Interest expense = €12,500 ~ €13,500 = (6) Income tax = 0.5 x Z11,156-<85,575 (7) Profit after tax = Profit befor? tax — Inpaye tax = 11,150 ~ 855, (8) 2.5 x Shareholders’ enuiy = %40,000. Shareholders! equity #40,000/2.5 216,000 (9) Reserves and surplus =-Sharcholdéss! equity ~ Share capital = 216,000 ~ 29,500 = 26,500 (10) Total liabilities = 1.5 x Sharehoilgrs' equity = 1.5 x %16,000=%24,000 (11) Interest expense =0.1 x. fong-IerM loans + 0.15 x short-term loans 31,350 ~ 0.1 x $3,000 +.15% Short-term loans Short-term loans = 7,000 (12) Current liabilities = Total liabilities ~ Long-term Joans ~ Shor'-term loans = %24,000 ~ 3,000 - 87,000 = €14,000 (13) Current assets ~ Current liabilities x Current ratio = 214,000 x 1.8 = 25,200 5,575 Balance Sheet and Statement of Profit and Loss —Chepter 12 p. 369© PHI Learning Private Limited, New Delhi. 2017. All igs reserved. No part of this Instructors Manual may te reproduced in any frm by mimeograph or any other means or stored in an electronic o other form. This Instractor’s Manual is for use bythe instructor to whom itis isued and should not be made available to any ster perso, (14) Investments ~ Total assets ~ Fixed assets — Current assets ~ €40,000 — %13,000— 225,200 = 21,800 (15) Receivables = Sales x Average collection period/365 = %92,000 x 36.5/365 =%9,200 (16) Inventories 25,200 ~ €9,200 — 1,000 = 15,000 Business Decision Cases BDC 12.1 SANDRA CORPORATION ‘Teaching Notes Case Setting and Objectives This case brings out the effect of alternative financing methods on earnings per sake Suggested Solution |. Computation of Earnings per Share ‘xpansion Current Debt Financing Financing Profit before interest and tax 147,100(7) %147,190-7 147,000 ditional profit 9% 500 93,000 PBIT after expansion 249,100 240,100 Interest expense : Current Zhi 22,100 Additional — = 24,000 Profit before tax a5;000 21,000 194,000 Income tax (40%) 2 {5,000 _ Cay 87.200 77,600 Profit after tax 5,000 130,800 116,400 Number of equity shares 7,500, 17,500 7,500 Earnings per share 10.00" 147 15.52 ferent Level of Eamings pt Share Equity Debt PBIT = 22,100) (05 (PBIT — 46,100) x 0.6 17,50), ol 7,500 PBIT = %64,100 Verification: PBIT after expansion 4,100 Interest expense : Current 22,100 Additional Profit before tax 32,000 Income tax (40%) 16,800 Profit after tax 25,200 P-370 Instructor's Manual to Accompany Financial Accounting: A Managerial Perspective be