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Analysis and Interpretation of financial statement

2.1. From the following Profit and Loss Account and Balance Sheet of Jayaprakash
Industries Ltd., prepare a comparative income statement and a comparative balance sheet
Profit and Loss Account for the year ended 30 th June
(Rs. in lakhs)
Particulars 2005 2006 Particulars 2005 2006
To Cost of goods sold 500 640 By Sales 700 900
To Operating expenses:
Administrative expenses 20 20
Selling expenses 30 40
To Net Profit 150 200
700 900 700 900

Balance Sheet as on 30th June

Liabilities 2005 2006 Assets 2005 2006
Bills payable 50 75 Cash 50 70
Tax payable 100 150 Debtors 300 450
Sundry creditors 150 200 Stock 100 200
15% Debentures 100 150 Land 100 120
10% Preference capital 200 200 Building 250 225
Equity capital 300 300 Plant 200 180
Reserves 200 250 Furniture 100 80
1,100 1,325 1,100 1,325

1. From the following Profit and Loss Account and Balance Sheet of Swadeshi Polytex Ltd.,
prepare a comparative income statement and a comparative balance sheet
Profit and Loss Account for the year ended 30 th June
(Rs. in lakhs)
Particulars 2005 2006 Particulars 2005 2006
To Cost of goods sold 600 750 By Sales 800 1,000
To Operating expenses:
Administrative expenses 20 20
Selling expenses 30 40
To Net Profit 150 190
800 1,000 800 900

Balance Sheet as on 30th June

Liabilities 2005 2006 Assets 2005 2006
Bills payable 50 75 Cash 100 140
Tax payable 150 200 Debtors 200 300
Sundry creditors 100 150 Stock 200 300
15% Debentures 100 150 Land 100 100
10% Preference capital 300 300 Building 300 270
Equity capital 400 400 Plant 300 270
Reserves 200 250 Furniture 100 140
1,300 1,520 1,300 1,520

2.2. On the basis of the data given in problem 1 & 2, prepare a common size income
statement and common size balance sheet of the concerned companies.
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Ratio Analysis
Short term solvency ratios
2.3. M/s. Ashok Ltd., has submitted the following Balance Sheet as on 30 th June 2007
Amount Amount
Liabilities Assets
(Rs.) (Rs.)
Equity Capital 1,50,000 Fixed Assets 1,62,000
Revenue Reserves 30,000 Current Assets:
8% Debentures 20,000 Stock 22,000
Current Liabilities: Debtors 51,000
Sundry Creditors 49,000 Bills receivable 2,000
Bank 12,000
2,49,000 2,49,000

Find the current ratio and quick ratio and comment on the financial condition of the
company.
2.3.1

2.3.2
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2.3.3 Long term solvency ratios

Short term and Long term solvency ratios

2.4. From the following particulars pertaining to assets and liabilities of a company,
calculate
(1) Current ratio (2) Liquid ratio (3) Proprietary ratio (4) Debt – equity ratio
Amount Amount
Liabilities Assets
(Rs.) (Rs.)
5,000 Equity shares of Land and Buildings 6,00,000
Rs. 100 each 5,00,000 Plant and Machinery 5,00,000
2,000 8% Preference Stock 2,40,000
shares of Rs. 100 each 2,00,000 Debtors 2,00,000
4,000 9% Debentures of Cash and Bank 55,000
Rs. 100 each 4,00,000 Pre-paid expenses 5,000
Reserves 3,00,000
Creditors 1,50,000
Bank Overdraft 50,000
16,00,000 16,00,000
Profitability Ratios
2.5. Calculate the gross profit ratio
Particulars (Rs.) Particulars (Rs.)
Sales 2,20,000 Purchases 1,75,000
Sales returns 20,000 Purchases return 15,000
Opening Stock 30,000 Closing stock 40,000

2.6. Calculate Operating Profit and Net Profit ratio

Particulars (Rs.) Particulars (Rs.)
Sales 2,00,000 Administration expenses 20,000
Gross profit 70,000 Income from investments 22,000
Selling expenses 10,000 Loss due to fire 12,000

1. Calculate 1. Gross profit ratio 2. Operating ratio 3. Operating profit ratio 4. Net profit ratio
Particulars (Rs.) Particulars (Rs.)
Sales 21,000 Income from investments 200
Sales return 1,000 Administration expenses 1,300
Cost of sales 16,400 Selling expenses 700
Interest expenses 100 Depreciation 200
(non-operating)
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Turnover Ratios
2.7. The following is the trading account of Mr. Murugan. Calculate stock turnover ratio
Particulars (Rs.) Particulars (Rs.)
To Opening stock 15,920 By Sales 78,000
To Purchases 39,000 By Closing stock 14,400
To Carriage 1,000
To Gross profit 36,480
92,400 92,400

2.8. Kasi & Co., sells goods on cash as well as on credit basis. The following particulars are
extracted from the books of accounts for calendar year 2006. Calculate the average collection period.
Particulars Amount (Rs.)
Gross sales 1,00,000
Cash sales (included in above) 20,000
Sales return 7,000
Total Debtors as on 31-12-2006 9,000
Bills Receivable as on 31-12- 2006 2,000
Provision for doubtful debts on 31-12-2006 1,000
Total creditors on 31-12-2006 10,000

1. From the following, you are required to calculate

a) Debtors turnover b) Average age of debtors
Particulars 2005 2006
Net Sales 18,00,000 15,00,000
Debtors (beginning of the year) 1,72,000 1,60,000
Debtors (end of the year) 2,34,000 1,72,000

2. A trader purchases goods both on cash as well as on credit terms. The following
particulars are obtained from the books. Calculate average payment period.
Particulars Amount (Rs.)
Total Purchases 5,81,000
Cash purchases 30,000
Purchases return 51,000
Creditors at the end 1,05,000
Bills payable at the end 60,000
Reserves for discount on creditors 8,000

Finding the Hidden value

2.9. The following information is taken from the books of a firm
Particulars (Rs.) Particulars (Rs.)
Sales 33,984 Sales returns 380
Gross profit 8,068 Stock in the beginning 1,378
Stock at the end 1,814
Calculate 1. Purchases 2. Rate if stock turnover 3. Gross profit ratio

2.10. From the following details find out (a) Current assets (b) Current liabilities (c) Liquid
assets (d) Stock. Current ratio 2.5; Liquid ratio 1.5; Working capital Rs. 90,000

2.11. Current ratio 2.5; Working capital Rs. 63,000. Calcuate Current assets, Current
liabilities
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2.12. Determine the value of closing stock from the following details
Sales Rs. 4,00,000; G.P. Ratio 10% on sales; Stock velocity = 4 times; Closing stock was
Rs. 10,000 in excess of opening stock

2.13. Calculate the value of opening stock and closing stock

Opening debtors Rs. 60,000; Closing debtors Rs. 90,000
Opening B/R Rs. 10,000; Closing B/R Rs. 90,000
Credit allowed to debtors 1 month; Gross profit 20% on cost; stock turnover ratio 10 times;
Opening stock was Rs. 10,000 more than closing stock.

2.14. From the following details determine the value of debtors

Total sales Rs. 5,00,000; Debtors velocity 30 days
Cash sales Rs. 2,00,000; Bills Receivable Rs. 5,000

2.15. A company has an average inventory of Rs. 7,20,000 and inventory turnover is 12.
The gross profit margin is 10% and credit sales are 20% of the total sales. Debtors Rs.
4,30,000. Calculate the average collection period.

1. Find out the value of creditors from the following

Sales Rs. 50,000 Opening stock Rs. 5,000
G.P. on sales 10% Closing stock Rs. 10,000
Creditors velocity 73 days Bills payable Rs. 3,000

2. Calculate (a) Debtors (b) Closing stock from the information below
Debtors velocity 3 months Gross profit Rs. 4,00,000
Stock velocity 1.5 times Bills receivable Rs. 25,000
Gross profit ratio 25%
Closing stock is 20% more than the opening stock

2.16. Following ratios are related to the trading activities of National Traders Ltd.,
Particulars Amount (Rs.)
Debtors velocity 3 months
Stock velocity 8 months
Creditors velocity 2 months
Gross profit ratio 25 per cent
Gross profit for the year ended 31 st December 2005 amounts to Rs. 4,00,000. Closing stock
of the year is Rs. 10,000 above the opening stock. Bills receivable amounted to Rs. 25,000
and Bills payable to Rs. 10,000.
Find out: (a) Sales (b) Sundry debtors (c) Closing stock and (d) Sundry creditors

Construction of Balance Sheet

2.17. From the following information, prepare a Balance sheet. Show the working
Particulars Amount (Rs.)
Working capital Rs. 75,000
Reserves and surplus Rs. 1,00,000
Bank overdraft Rs. 60,000
Current ratio 1.75
Liquid ratio 1.15
Fixed assets to proprietors funds 0.75
Long-term liabilities Nil
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2.18. With the help of the following ratios regarding Indu Films, draw the balance sheet of the
company for the year 2006.
Current ratio 2.5
Liquidity ratio 1.5
Net working capital Rs. 3,00,000
Stock turnover ratio (cost of sales/closing
6 times
stock)
Gross profit ratio 20%
Debt collection ratio 2 months
Fixed assets turnover ratio (on cost of sales) 2 times
Fixed assets to shareholders net worth 0.80
Reserve and Surplus to Capital 0.50

2.19.
Debtors velocity 3 months
Creditors velocity 2 months
Stock velocity 8 times
Capital-turnover ratio 2.5 times
Fixed assets-turnover ratio 8 times
Gross profit turnover ratio 25%

Gross profit in a year amounts to Rs. 80,000. There is no log term loan or overdraft.
Reserves and Surplus amount to Rs. 28,000. Liquid assets are Rs. 97,333. Closing stock of
the year is Rs. 2,000 more than the opening stock. Bills receivable amount to Rs. 5,000 and
Bills payable to Rs. 2,000
Find out
(a) Sales (b) Sundry debtors (c) Closing stock (d) Sundry creditors (e) Fixed
assets (f) Proprietors fund. Make out the Balance Sheet with as many details as possible.

2.20. From the following particulars, prepare the balanced sheet of X Ltd., which has only one class
of share capital.
Sales for the year Rs. 20,00,000
Gross profit ratio 25%
Current ratio 1.50
Quick assets (cash and debtors) ratio 1.25
Stock turnover ratio 15
Debts collection period 1½ months
Turnover to fixed assets 1.5
Ratio of reserves to share capital 0.33 (i.e., ⅓)
Fixed assets to net worth 0.83 (i.e., 5/6)
(The term “turnover” refers to cost of sales and the term”stock” to closing stock)

2.21. From the following information, you are required to prepare a Balance Sheet
Current ratio 1.75
Liquid ratio 1.25
Stock turnover ratio (cost of sales / closing stock) 9
Gross profit ratio 25%
Debt collection period 1½ months
Reserves and Surplus to share capital 0.2
Turnover to fixed assets – (based on cost of
1.2
sales)
Capital gearing ratio 0.5
Fixed assets to net worth 1.25
Sales for the year Rs. 12,00,000
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1. From the following information of a textile company, complete proforma balance sheet, if
its sales are Rs. 23,00,000.
Sales to Net worth 2.3 times
Current debt to Net worth 42%
Total dent to net worth 75%
Current ratio 2.9 times
Net sales to inventory 4.6 times
Average collection period 90 days
Fixed assets to Net worth 53.2 %
Proforma Balance sheet
Net worth ? Fixed assets ?
Long-term debt ? Cash ?
Current debt ? Sundry debtors ?

2. From the following details, prepare statement of proprietor funds with as many details as
possible
(i) Stock velocity: 6
(ii) Capital turnover ratio (on cost of sales): 2
(iii) Fixed assets turnover ratio (on cost of sales): 4
(iv) Gross profit turnover ratio: 20 per cent
(v) Debtors Velocity: 2 months
(vi) Creditors velocity: 73 days
The gross profit was Rs. 60,000. Reserves and Surplus amount to Rs. 20,000. Closing
stock was Rs. 5,000 in excess of opening stock.

3. With the following ratios and further information given below, prepare a Trading Account, Profit
and Loss Account and a Balance Sheet of Shree Ganesh & Co.,
Gross profit ratio 25%
Net profit / Sales 20%
Stock turnover ratio 10
Net Profit / Capital 1/5
Capital to Total liabilities 1/2
Fixed assets / Capital 5/4
Fixed assets / Total current
5/7
assets
Fixed assets Rs. 10,00,000
Closing stock Rs. 1,00,000
4. From the following information, prepare a Balance Sheet with as many details as possible
Gross profit Rs. 80,000 Current assets Rs. 1,50,000
Gross profit to cost of Accounts payable velocity 90 days
goods sold ratio 1/3
Stock velocity 6 times Bills receivable Rs. 20,000
Opening stock Rs. 36,000 Bills payable Rs. 5,000
Accounts receivable velocity Fixed assets turnover ratio 8 times
(year 360 days) 72 days
Hint: Turnover refers to cost of sales

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