Financial Reporting and Analysis

End-term Examination
Maximum Marks : 35 Duration 2.30 Hrs.

Instructions:

1. You are required to submit the solution in excel sheet or Ms Word Document.
2. All questions are compulsory

Section A
Case 1: Inventory Case of High Hill Company

A. High Hill Company had the following purchases as of September 30, 2020.

September 3 : 400 units @ $10.50 = $ 4,200

September 8 : 100 units @ $11.00 = 1,100
September 19: 200 units @ $11.50 = 2,300
$ 7,600
On September 20, 2020, the company sold 240 units at $16.00 per unit. On September 30, 2020,
a competitor announced a new model which resulted in the cost of Payton's inventory dropping to
the new replacement cost, which was $10.75 per unit.
Required:
1. Compute COGS and Gross Profit of the company under LIFO and FIFO Method.
2. After September 30, at what value the inventory should be reported as per LCM
principle.
a. If Company used LIFO method
b. If Company used FIFO Method
(3+1 Mark)
B. High Hill Company Inventory losses
High Hill Company uses a periodic inventory system. On January 1, 2020, the company had
beginning inventory of $979,000. From January 1 to April 27, the company purchased $285,000
of inventory and had sales revenue of $840,000. On the morning of April 28, a landslide occurred
which resulted in the total loss of all inventory. The company's gross profit percentage has
averaged 40%. What is the estimated inventory loss due to the landslide?
(3 marks)

Case 2: Disposal of Equipment at Bestserve Hospital.

Bestserve Hospital acquired scanning equipment for $ 29000 with expected useful life of 5 years
and $4000 as residual value. The hospital uses SLM method. The hospital sold the equipment at
the end of four years for $14000 cash. Compute the gain or loss on the sale. Show the effects of
the sale on balance sheet equation. (3 Marks)
Case 3: Cash Anomaly case of Sunrise Limited.
Mr. Sunny, the CEO of the company is wondering as to why the cash balance of the company
shown by balance sheet is so low despite of 2019 to be a good performing year in terms of sales
and profitability. Prepare the statement showing cash flows from different activities on the basis
of income statement of the company and two consecutive years’ balance sheet.

Income Statement of Sunrise Limited.

For the Year Ended March 31, 2020

Sales $586,000
Cost of goods sold 311,000
Depreciation expense 14,000
Amortization expense 3,000
Wage expense 88,000
Rent expense 24,000
Loss on sale of fixed assets 2,600
Interest expense 4,900
Income tax expense 56,000
Total expenses 503,500
Net income $82,500

Balance sheet of Sunrise Limited as on year ended 31st March 2020

March 31, 2019 March 31, 2020
Cash $16,300 $19,900
Accounts receivable 27,900 36,300
Inventory 53,900 48,200
Prepaid rent 1,800 2,000
Land 22,000 32,000
Fixed assets 118,000 130,000
Accumulated depreciation (39,000) (46,000)
Patent 11,000 12,000
Total assets $211,900 $234,400
Accounts payable 21,100 27,700
Wages payable 5,700 6,200
Interest payable 400 1,600
Taxes payable 7,900 6,800
Bonds payable, due 2025 36,000 44,000
Common stock 32,000 35,000
Retained earnings 108,800 113,100
Total liabilities and
Stockholders' equity $211,900 $234,400
Additional Information:
(i). No land was sold in 2020. Land was purchased using bonds payable for $8,000 and cash for
$2,000.
(ii). A fixed asset was sold in 2020 for $4,100. Purchases of fixed assets and patents were for
cash. (4+3+3=10 Marks)
 Section B

Provided are the financial statements of Berger Paints and Kansai Nerolac Paints for the
current FY 2020.
Berger Paints India Kansai Nerolac Paints
------------------- in ₹ billion-------------------
Mar '20 Mar '20
Net Sales ₹ 56.92 ₹ 49.43
Other Income 1.44 0.26
Stock Adjustments 0.17 -0.51
Total Income 58.53 49.18
Expenditure
Raw Materials 33.93 30.34
Power & Fuel Cost 0.48 0.70
Employee Cost 3.43 2.69
Selling and Admin Expenses 2.37 2.46
Miscellaneous Expenses 7.31 4.91
Total Expenses 47.51 41.10
Standalone Balance Sheet
Mar '20 Mar '20
Liabilities and Owners' Equity
Equity Share Capital ₹ 0.97 ₹ 0.54
Reserves 25.28 37.33
Networth 26.25 37.87
Secured Loans 2.22 -
Unsecured Loans - -
Total Debt 2.22 -
Current Liabilities 14.62 7.90
Provisions 0.33 0.16
Total CL & Provisions 14.95 8.06
Total Liabilities 43.43 45.92
Assets
Gross Block ₹ 18.52 ₹ 25.81
Less: Accum. Depreciation 4.65 8.73
Net Block 13.86 17.09
Capital Work in Progress 1.68 1.64
Investments 6.48 4.55
Inventories 11.67 9.30
Sundry Debtors 5.59 6.75
Cash and Bank Balance 1.26 1.66
Loans and Advances 2.89 4.93
Total CA, Loans & Advances 21.40 22.64
Total Assets 43.43 45.92
Answer the following questions analyzing the statements of both the companies.

(i). Which company is utilizing its investments more profitably?

(ii). Which company is collecting its receivables faster (assume all sales as on credit basis)?
(iii). Which company is paying its creditors faster (assume current liabilities as creditors)?
(iv). Which company is converting its investment in inventory at much faster pace?
(v). Which company is more solvent from lenders’ perspective?
(vi). Comment on the quality of the performance of both the companies using du pont analysis.
(4.5+1+1+1+4+3.5=15 marks).