PROBLENS & SOLUTIONS RAVI M. KISHORE M.COM., BLL, A.LCWA., F.C.S., PGD.PM, 2ND EDITIONPetar “wana Piano (PU “ge eh’ uma ara re ‘vat saustangis cme Sqeeeeg me eaasemar omen tarean ne ozABOUT THE AUTHOR Sei Rav M. Kishore has tuied Masters’ Degree in Commerce in Sri Venkateswara University, FERS Mid studied echelr of Laws in hcharya Negarjana University Guntur, He an Freee SMe of he inte of Con and Works Aecountants of Ida, Kekata anda Fellow ~ Meee Arie atte of Company Sacrtases of India, New Del He bas stuled Post. (Getdoate Diplo Course in Petsnel Management in Anamala} University He has also Cetiptatss120 9000 Ouolty Managemen Sytem Auditor Course conducted by Lloyds Regster ‘Ghalty Assurance, London, He has worked in med and large mansfacaring concerns for over 15 yars in enor lve ‘Atagementpstoons handing nace, Accounting and Secretarial Functions, Presently he eesctbingans Management Canslant offering specs services tothe corporat sector Hels actively involved inthe academic fel adn teaching profession for over past enyearaand ‘iesSuttored seveel tent boo for Proferional and Academie Coursesin Pinal Aseoustng Ccktceounting: Management Accounting snd Fnacal Management subjects Fort Academic nd Professlonal Cores hk Bor BOA, Con, MBA, Ch ICA, 1) Advanced Finaclat Accounting and Reporting 2) Cost Accounting 3) Students" Guide to Cost Accounting 4) Cost and Management Accounting ‘Problems & Solutions on Cost and Management Accounting ‘Suudens’ Guide to Cost and Management Accounting 7 Advanced Management Accounting ® Financial Management ‘Strategie Financial Management 1 Prbens& Solutions on Financial Management 11) Cost Accounting nd Fnancil Management farca Fob) 12) Problems & Solutions on Cost Accounting & Financial Management (Fr CA. Fe8)PREFACE TO SECOND EDITION “This 2nd ett ofthe book is thoroughly revised and enlarged incorporating al latest aa aaaron oroblems ow varieties of concepts on Financial Manageren subject. The ee eeee each useful for students undergoing courses lke M.Com, MBA, CA, CS, TeWA. The practcal and examination ovizntation ofthe book helps the students cefettdiat wells, to undersand the conceptual application ofthe subject. The book Seen ty solved examination problems wih elaborate working notes. Te Srobleme are arranged in topie-wis, to enable the students to vnderstand the practical Phplicaion of various concepts in Financial Management. “The student and faculty may send their suggestions for further improvement ofthe book. 15th October, 2009 AVI RSHORE So, Aruna vas, ‘Guana Neg Main Road, ‘pp, un Boro Schl ‘Vppswndn 520007 (AP) Cl: 9959517768 femal: revitpera@ rediffmail.comCHAPTER-HEADS Portone_ PRINCIPLES OF FINANCIAL MANAGEMENT 10 u 2 3 4 5 16 ” 8 Financlal Statement Analysis Value Added Analysis 7 EconomicValue Added and Market Value Added 18 Breakceven and Cost-Volume-Proit Analysis 28 Ratio Analysis: Computation and Comparison of Ratios +8 Ratio Analysis Preparation of Projected Financial Statements 99 ‘Analysis of Operating and Financial Leverages. 104 Funds Flow Analysis 128 Cash Flow Analysis 11 TimeValue of Money. 208 ost of capital 211 ‘capital Structure Decisions 250 Value of Fim under Capital SructureTheories 257 Dividend and Retention Policies 256 budgeting and Budgetory Contiol 19 Cosh Flow Budgeting 350 Capital Budgeting Simple Problems 176 Capital Budgeting Advanced Problems 405610 chpternede 19 20 a 2 2 2 25 26 a 28 29 30 a1 32 3 34 35 36 a7 38 pital Budgeting ‘Replacement of Eiting Assets 42¢ Copital Budgeting vation and SCBA. as9 Cepita Budgeting :Rationing of Capital 452 Lease or Buy Decisions 4 Working Capital Estimatlon 01 Inventory Management s4t Receivables Management 556 Management of Cash and Marketable Securities 590 Working Capital Finance 586 Two_ ADVANCED FINANCIAL MANAGEMENT Financial strategy and Planning) 22 Project Planning and Control «27 Project Cash Flows Estimation «x2 isk Analysis :Probabilty and Expected Value 4&2 Risk Analysis Best and Worst Estimates Risk Analysis Value of Perfect Information 9 Als Analysis Standard Deviation of Cash Flows ese Fisk Analysis Senskivity Analysis 700 isk Analysis Risk Adjusted Discount Rate & Certainty Equivalent 720 Fisk Analysis Abandonment Option 730 Ask Analysis Project Beta 73639 40 a 2 a 45 ar st 52 sk Analysis Simulation Modeling 707 Fisk Analysis Decision Tree Analysis 760 Ccaptal,Debt and Stock Markets 771 Equity, Debt and Money Market Instruments 785 Mutual Funds 790 Derivatives and Option Picing Theory #08 Investment Management and Risk-Return Analysis ess ‘Capital Asset Pricing Model and Modern Portfolio Theory 2 Valuation of Business at? Mergers and Aequistions 924 Business Restructuring and Industral Sickness 286 International Monetary and Financial System 965 Foreign Exchange Exposure and Fisk Management 289 pital investment Decisions on Intemational Projects 10'« athematia Tber 1023Part One Principles of Financial Management 1 Chapter FINANCIAL STATEMENT ANALYSIS2 Paton: nc Minsgmen You are rue te (@) Prepare common size statement, nd) Pecform index snl (©) Valuate trends in th company's ancl condition snd performance. (CWA Final Dec 2007) {Common Sie Balance Sheet of M/s Novel company forth years 2006 o 2010 (8s. 000) Reediables ns ns s40 entries 4 sae Netfned asets 482 20 367 Toul assas joo ino ina Pavable 2a 286 sat Acre 2 so 9 Bank loan 35 ar as ‘caret abe @ a al mt ‘Long er debe a “7 “wo Shareholders egy 32 m0 a9 Longe funds ° 2 a7 5 Totallebilies and ity re woo 1000 1000 ‘omnes Income Statement of Ms Noel ampany forthe year 2008 2010 Parcs 700208 7010 Sales a 00 0 a Les Cost goods sot m0 744 as ros prt 1 Use Seling oneal and administrative expenses 8 ra 183 Profit before tax 2 a a es: Ta a ao as Profit ater tax 3 ae a desis (3) The cash blancs dining over ears 208 2010 which may enue ud probles (©) There is sharp increas of reclvbls balance which maybe due to infin in collection of debrs ble (©) The proportion of inventories o total ast ren same in year 208 an year 2010 but the inventory hos shen reduced tance near 2008 (@) The proportion of net fed asco talents remain unchanged fryers 2008 and 200 But higher propartion is shown net 2008 (©) Theshareoldrs uly total ales has sharply deca fron $9.2 20081047: 2010, (© The proportion oflongerm debt remains samen al the 3 ear, (© The proportion of bank oan in oa abies ances rm 3.5 in 208 88 in 2010Chapters Fran sutrace ans 3 (hy The proportion of acral ool aber reminlmost same in al hss yea (d) he puybleshavetcressd from 261 t020Aoveraperod of 3 ears represents delay making mens for eer (0 Thereisnotmuchf change incortof gods sol sling general and amintrative expenses Miiiee ens causing worm prof lth eur ‘statement showing Indes analyse of alae Shs ern Years 206 o 2010 Prriclars 2008 Cosh Too. Receivables 1000 Netfined assets roo Payable ‘coo 2ecrasle 1000 ak lata 190 Curr aites too Loner debe to9 Sharsoldes equi to08 1000 mea showing Index analysis of Income Statement tems in years 208 to 2010 — a ok 2009 Sie ima (Cost of goed sold imo 1303, ‘rose pai oo Solin general and adninstratv expenses 100132 ey Profit before ex joo us Ba Profit ere st Ids ans shows much the same plete Cath dete fster han total ase anderen se Shreeiubesnxeaed faster han dts vo bench ark. Inventories octunto bat were abou the sun percentage wis fot sets in 01Dasthey were in Nat fixed sats nce more sary han ttl eset 2009 an hen fl ack nt ine in 2010, ‘Theshepincreasin bank ensia 200 and 2010 the sar iereaseinlngrm des in 2009 are vent wy incensed le than toll esis ao dsb reed more percentage wie, Wi respect to er rt pelts nrc es than ifr treason ent cer.Problem 12 The folowing arte Profi nd Low Acouns of Aidan Ld, who are ngnedin he see FLA i Add Ese of sng stock nr oping socks so or Less: Raw materi consumed 230 0 wes us so Diet manag expenses 099 0 Indirect manufacture pees 30 Administ exposes tao Selig a rion expres 90 Depecatin 20 risen ta im Other information (@) Thete was an nerense of 1 nthe pie of rode wih fect rom a Janay, 2010. (b) Con of aw materia was merase by 1% from It Janver. 2010 (© Abid follows FIFO method of valuation of Fes goods whit Lia follows LIFO metho. IA were to accep LIFO method is closing senor valuian wl come dows Oy Re Soda (@) B 1d ows stright ine method of deprecation whit AL lows the WV math. The ference in deprecation between he wo metbodeenthe casect Aid willbe Re Soab ees provison ns Boks (6) Production and sls of she two companies are evenly spread troughout he yar: Prepareacommonsie statement abdinterpres theres with appropiate esonn and working notes (ote: Figures may be rounded oft two decimal) (CA-Fnaltow 1993) Seltion Working Not ()Smootheing incest in Sales due to 10 eres in piceof oducts from It January 200. ‘Let omy sls of A Lb ‘month sales ofA Led. Next 3 months sles A Lid 12 month sales Es othope Fran Sumer Ass abe = Res200000% 10 = Be 32000007123, = Re 26063 Sales before the effet of 106 pic erase os ‘Toul szo0000 {es Sales ras ote of 108 pce increase (FZ months Rs. 2460163) ‘zis ay Re O78 as 2)Smoatnening of ncreases in Raw materia ox deo 158 increas In cot ren Ist Janu 2010, Let momly Ra material cost of ALi. bey” "9 months cont of 84 eri 2 month otf ee material essen PPB meson Inasy = Reazanxia = Res300000/1245 > = Reenss? ‘Raw Material Cot Before he fect of 18 nsease as) Total ow materi ost ‘30000 Tour Rv materia cont por tocffet of 10binerease_ (12 months Xs 867) 1.000 3,000 ‘ay Re O30 as Revised Fguresaf ALi (kts) (Sales ~ 2-078 si (i) Excesof dang stock ver pening stork = 3-020 (LIFO adjustment) = 480 Gi) Rave atrial consumption {) Depreiation| Coron Size tse Statement 2 31122009 30-030 oe 250-050,SLMadjunmen) = 2 . ae eet at Sie un aT a ‘Stok adjustment ‘3 i280 @ 302 (oom = S200 ‘om(6 Pet one Pcie of Pan a Comte eve material consumption soo man 280 Waser al Dect manufacuringexpenses 902) Indirect manufacuragenpenses 030 Ga} Adminstration expenses in ae Slinganddistibuion expeses 09023080 Depreciation 2053520, Ineo, 20 33a ® as ae Fra Frofibeoretss 0-0) 1677656 4a) (0) AL shows favourable res one B Lid inept of aw materia constinption This may be ‘ue tober cre terms discounts, favourable mater wage arson ae (2) Aad shows saviegrover B Lid. in Wages Admiistratine expenses and Seng a tution ©) lappearstat Lid expends moron det andindtmnafctriageapeses compared (4) Hier deprecation charg in repect of B Lid maybe de wo higher Investment a fined ass by Btid A Lid avantgeons postin than 14a cep tenmene Peed Accs (5) tnterest charges ALi much higher over A 1d ALi apes tobe highly geared ads sje co leverage ra2 Chapter hapten VALUE ADDED ANALYSIS Problem 21 “Tarsumasze Prof ae Lass Acount of ines Lid forthe yar ended, 3st March 2010 waa follows — hs) Sale ese: Cost of goods sold Gros profit Less: Admiistratve and other expenses ‘et profit before terest and axes 1.00000 Less Interest expenses “ago Net pri before tax 920000 Tes come 330.000 Net pefitafter tax $540,000 ‘Nd Nona income ‘m0 | efor dtbution 63.000 2410000 Anlyis of costo — ‘Material and supe 7 Wages sm Depreciation * Eleriity i iow ‘nab of administrative Salar Postage Printing and statonery Depreciation cfr the ar nde 36 March 2010 CWA Fpl ane 2006) ‘Prepare Value AddedSotuion Working Notes Analysis of Cart of Gods Sold et “nae — ee ee Matra ndpplice ° x00 Wages so 2100000 Depreciation + 100 | Bltrly 6 2290 m0 209000 = 9 —_s)_ Silver « 720000 Postage fo 0000 Depreciaon 5 80.000 io 209000 nr ‘retion of Value Ade Sale ‘00000 Value of Bought in goods and series Mater td suples 1620000 Bessy 25200 Postage 0000 Printing and staonery 240000 2352000 Value added aa 00 Nonraing acne 0000 Valo added avaliable for apieation as000 Discuton of Value Added = (@) To Employees Wages 2100000 Sskrice 72000 2520000 (6) To Goverment Incometan 80000 (© ToProvdersof apa Divided pl and payable 2.10000 Interest expense ‘40000 3.90000 (@ Retained senings _ Depreinton 2228000 Retained eannge 1420000hap Ved As 9 Problem 22. Thefolowing ae the balances the counts statements of Value for Money Lid for the ear ended His March 2010 _ ato) Turnover 330 Pant and machinery net ‘080 eon ale of machinery 75 Depreciation on plant and machinery 200 Crees i] ‘Total tock ofl material, WIP nd ised gods Opening ack 160 Cling sock 200 Raw rater purchased @s Cash atbank * Printing and stionery 2 Aditor remuneration 28 Retained profit (opening balance) oe Retrne profit for the oar 28 Rent rev and anes Other expenses (Ordinary share copa sued Interest on borownge Income fo the year Enployes state surance Phrcontrbution Prepare Vale Add Sate for the company for 2000-10 ogee with ratios tha would be of iarest tothe employes othe company who ar 88 TLEWA Final une 1992) Soltion Siatement of Added Valve _ (&s,000) Irons in stock of ra materials, WIP and fished goods 2° 330 ese Cost of boughtin materi and services ‘Raw mate purchased, Auditors remuneration Ren rates and anes Other expenses os dd Vale asStatement of Dspenal of Added Value Contribution ieome a or he yr ‘To Provider Capt Dividends Retvestedia Basins Depreciation on plant and machinery Retained profit forthe yar Lows on sale of machinery ‘Total Dips of Added Value (Caution of Rat (@) Added value per employee (6) amnings per employee () Tarnover per emplivee = Re 145000/95 = Rs 3.90000/95 Rs. 28,00000/95 ea 0 as “88 oe ais Rs. 1,95 224210 From te ollowing ures exacted fro hens and cost accountng record, ou ar egired (Vale added (i) Ratio of Operating prof to Ne sles and (i) Rai of Operating profit to Value added Reval ocaig ace ay Ince Sek bed pods aw ater consumed Packing moter consumed Sores and Spar enum ower and Fel ‘Reps an aleteances itormce Dict sis and wages Depeslaton Incest paid Factory Overheads Slates and wags Others kbs) 7100 230 1200 0 4600 1398“eing and Dsroaton Overs Salaries and wags ‘Additonal sles ox otters Aminsraion verbeads Salaries and wages other Computation of Value Added [Nels Tne In stock of Based Goods Ls: Cos of Bough out Goods and Serves Raw materiale Storer and spares Power and fuel Repairs and maintenance Other Factory overhead Other Sling and Distribution oveead ther Administration overbend Value Added Operating prt Ad Interest operating proto Netsses = 7% 100 (0 Ras of Operation os = 78, ti of iso 1888 109 (Ratio of Operating rot to Vale ade = F539 Problem 24 ptr Vie aed ae 1 “I 1.70 0 {WEWA Fina ne 20071 a 10 2400 ‘a0 sa 2 Me no10 Ey ‘way ia (nthe he following income statist pertaining to Dat Ld, you are required fo prepare (0) Grom vac added statement, ae (2) Statement showing recent of gros vale added with profit before anaon oi an Lon Aso of Da Ld othe yar de 316 Mare, 2010 msc) ‘Sis es euros 1527956 Dividends and terest 130 Micelaneousincome ro12 Pane: in rancese mere Production and Operational Expenses Decrease in intentory of Finihed goods 26054 Consumption of Rew materials 740821 Power and ping ‘Staff wf expense Other manusctaring expenses 25651342010 Adminitrative Expenses Director remuneration rao Other admirtive expenses seo sao ‘9h Morgage debentures ta00 Langer loan from finan inition 1000 Bank overdra| 100 Deprecitin on Fined assets © Prof fore taaton| @-0) Provision for income tx @ 35.875 Prof afer mation Balance of Account a por st Balance Sheet Tranter to: ‘General reserve 404 of Rs, 48530 22 Proposed diend @ 228 22000 Taxon dstrbted profits @ 128% 818 43030 Sul cariedoBalanestect 00 (1GWA. Fina une 2007) irk Noe ‘elution f cot of bought in materia nd serves 6s. 00) Decrease in inventory of iris gods 26054 Consumption of rw atrial ‘agai Power and ightng 0030 Other manaactring expenses Saseshapa Ved Asis 12 Value Added Statement of Dark Lid forthe year eded 3st March 2010 rs. co0) ‘Sates es ea 1521956 ese st of bought in material & servis, a8 per working nate 194m ‘Mmintative expense, 600 Interest on bank overdralt 1900 Value ded by manufacturing & trading sets [Add Dividends interest Mcetaeous income ‘Total vale added Applicaton of Value Added Paria oo a0) @ ‘To Pay ompiovee a Wings sales & Bono sanze0 Stal welfare expenses, 260 4nkom 7079 o Pay Director: = Director remuneration 7410 136 To Pay Goverment Taxon dteibted profi 28 nae 1a To Pay providers fea = {terest on longterm loan fom inansialititon 10000 Dividend to shareholders 22000 46000 05 To Provide fr maintenance & expansion ofthe company; Depreciation on ied assets sooo ‘Transfer to general reserve saz Retained prot (6400-6300) 350 13a a Statement showing Reconllation of Total Value Added wih Pro before taxation (Rs, 00) Profi before tation 71,00 Add back Wages salaries & borus a6 Staff well exper 246200 Exes Duty e340 Director's remuneration 710 Interest on 98 morzng debentures va00 Interest on long ter a rn aan nttution 10000 Depreclton on fixed ase, suso0 505380 Total ale added‘From the folowing pit and os account of Kalyan Lid prepare a Gross Value Added Statement ‘Show sb the recotation between eos value eed and prot before taxation Profit and Loss Acout forthe year ended st March 2010 area Notes Relat Other nce 1020 Expenditure Producten and operational expenses, ess ‘etinsraton epermes 2 eR Inver and ober charzes 5 400 Profit bore an nyestent allowance reserve wten back Bance a er st Balance Shoot Genera eerve 2430 Proposed dead 3007730 ‘Surplus carta to Balance Shoe lars () Production and Operational Expenses bk) Ineresse instock 3050 Consumption af aw materi ast Consumption of tor 530 ‘Selren wages bonus and other benefis na0, (Coss and lca tanee a (ther manufacturing expenses 0 i657 (@) Administration expenses include inter alin suit fers of Ra. lakh, salaries and commision to ‘ieccurs Re 20 athe and proviso or double Re 20 ae (9) Itret and Oner Charges . a) (ised oun rom anal nso 300 (On working capita loane rm bank 20 (CA Fal May 1996)chapter Yo Aid Als 18 Value Added Statement of Kalyani Ld forthe year ended St March, Parcs es: Cost of bought in materi and servicer Production and operational expenses Administration eens Interest on working capital leans ‘Value ade by manufacturing and trading actives ‘Total Valu Added ‘Application of Value Added ‘ToEnployes ‘Sales, wages bonus and other benefits ‘TaGoverment Cena lca ner Incomesax ‘ToProviders of Cpl Interest on ie loans Dividend ‘TaProvde or Maintenance and Expansion Generaresere 2430-046) Retained profit (175.135) Frit before x As back Depreciation Solves wages bona and ther beni Interest on debentures Iutereaton Exe loeae 230 320 v0 390 Reais 20642 15639 ae nao S07 niFo Sarto nO pe re a fantom rob nd Lae Account forthe year ended It March 2010 as 5 Sale on ‘Other income 3 Expendtre Production nd operational expenses er) ‘Aiintration pers, z Interest and ober charges 3 as Profit before tan = Balance a por st Balance Sheet Transfecred to Fed assets replacement reserve Diidend paid Surplus arid to Balance Sheet 0 Notes (0) reduction and Operational Expenses Consumption ofa materials Conmamption of tree Local as ‘Sales to aise alt Other manafactring expense (2) Adminsraton xpem ince Salaries nd Commision wo Directors Re 5008 3 (@) lntereston bank ov (6) Fed lan from ICC (©) Working capa lans rom LEC (@) sci dutes amount to netenth of al value added by manafacorng and Wadlng setiies {CA Final May 1999 June 2008)Captr2 Ve aed ass 17 on a0 iss (aw) setts Brighex Co. Lid Value Added Statement forthe yar ede 3st March 2010 Farias ‘ae e200 {se Cont of tughtin materi and services Praducsion and operons expenses (2320-8 620) 492 ‘ministation expenses (as0-5) 175 Interest bak overdraft 09 Interest on working capa loan 20 ie des (efertaworkingnats) 180 Mcelaneous charges (444-180) 2 440 ‘Value added by manufacturing and rain actives i300 ‘Add Onher income “Ss Total Value Add 185 Appleton of Valo Ade “Tokmployess ‘Sires adminitrative staf en ‘ToDirectere Saito and commision 5 Toca tx 8 Income oe oe ToProviders of cata Tate on fae oan 5 Dividend wooo “ToProvde for maintenance ad expansion Depreciation 16 Retsined profit (0-4) Seo 858 iss Reconcation between Total Value Ade and Profit Before Tanaion Profi belore tx Addcle Depeeition 6 Saris to adminbrve staf a0 Ingees on fixed oan st Unc as au otal Valve Added18 Pan One Perce fon onapemee Miorking Notes Citation of Exe Duty nd Miscellaneous Charges 000) interes and Other charger a est Interest on Bak Overrat 1 Interest on Lea om LCC 31 Interest on Loan from LF 2 EnciceDuty and Miclaeous Charges Assuming tha the misclaneous charger have tobe ken for ring Valc Ald te amount of ‘rcs ty and misalaneou cargo compuned a ese ‘eto Let excee dts be Miscellaneous Charges = 444 = 10,6240. (3682-15 109-4204 +4449) 1710(6240- 4440) = 19 Brcie Day = 180 Miscelanoous Charges = 444-180 8 However, other misclanous charge ar taken at any ipe of aplication of Val Aided (tobe ‘aken inthe application pa thn exe duty) wil bs compass foloae 1/10(8240- (692 +15 + 109-420" a) = 110 @248-9) ‘clei one 2a aed na swe preparc taking miselancous charges R240 thousand ce 84 DONS ee vahewweaa “8Chapter ECONOMIC VALUE ADDED. AND MARKET VALUE ADDED Waihted average conto capa 16548 (LWA Final Oe, 2002, Jon 2005)20 Pen One-Peceal sn Manageme Sauce at pan ao pa) waga cot a seers) sea tea a6 or ie a aate ‘too swnee at of Capa Epp (COCE) = 216% 659/100 = RE AST ores rofiaher tx teore cxaptonaltoms ‘Ad Tneret after taser, NetOperatng Profit After Tax (OPA) 3s EVA = NOPAT.COCE = 1546-46577 ~ Re 108023 crores X Lid. earned Rs. 16 millon on net ses of R20 milion, The cot of cpt 15% Cala the ‘net percentage tur on nvstment and EVA” (UCWA Fin! ne 2007) Esenings = Rs 16 millon Copal employed = Re 20-ilon Costafeapeal = 1154 Return o lnvestent Retin 9 = Reaniion 1 ~ Bonomi Vale Added Rs 16 millon (Rs 20 ion > 15/100) Ro. lin Re 23 ion = (Re OT min nogve EVA) {kul Eso Vale Added (A) wth help fhe flowing norman of Hypa ancl leverage: 14 mes CCoptalstuctre + Equity capa e170 Resovesand surplus Re 10lakhe 1OmDebenturer READ Costof Eauty = 1758 Income Tax Rate: 308 (A Fnalnov 2006) salen Financial Leverage = Limes ven) Then = g Ahare Karamu Ned anata Ae 21 14 (e80T-40) = EDIT EMT = 56/04 = 140 Barings Before terest and ax = Re 140 kh ‘NOPAT = EBIT- Tax = Rs 10 ak (1-030) = Re 98 ake WAGE = (RX of equ) + 0% Hof dbo {a9 200/700 + 0 (1-030) x 40/700) EVA. = NOPAT-(WACC% Toa capita Rs S6lakh= (0115 XR. TOIakhs) = Rs 17S0laks ‘Prom the olowing infration concerning Nebls id, pepe a statement showing computation of EVA tor the yearend Set March, 2010 Suinmarind Prfitand Los Account forthe yea ended Sst March, 2010 es) Sale 7mapa000 ‘Cost of god sold 200000 Gree eft 00000 ‘General 2200000 Office and administration 2.50000 Selig an iatebation ‘4900 5.16000 Pri before terest and nx BID) 286000 Interst 34000 Prof before tax (P57) 250000 ‘Texas ‘ono Profit afer tx 50000 | Summarized Balance Shoe ton 3st March, 2010 Gables ses agi saree 30000 Fed aslo) 00008 Reserves "soa00 Careat Asses: TTermloan 20000 Stock 10000 Caren abies 160000 Debore ‘1000 the parteuars (1) General expenses nce RAD expenses of Rs 80900 For EVA sorption R&D expenses are tobsconaered aram vexnet (2) Gon of goods sold includ depreitlon expense of Rs 60,000 {G) The expectation stun of sharers is 28, {LEWA Final sume 2004)22 Pron: Preto ea rapes (Clelston of NOPAT Net roi afer tex ad erent ‘Ada! Ta ahstd intent [36000 (1-08) Profi afer bt belo intret Net operating pli after tax (OPA) Colaltion of Capt payed Reserves Adjustment for R&D uly funds [Ade Longe dab {apial employed vce = frase] (o12<$$}+(oso-00)74) costo Capital Employed = Capt employed x WAC a 73000 1/100 a 70200 ronmic Vl Aled = NOPAT Cot of apt employed = Re 251600. Rs. 79200 = Reiman Problem 3-6 The abridged finances of Deportivo id forthe years 2088.0 209 are given below e oe ‘eto Balance Shasta on 33109 913.20 Fictawce a nance by Sars fnds mm edu and ong term bank ons 20 a = 980 Fri ad on oa ToT ya oko 209-10 Prot asountng profit 200 es Tevaton 3 0 Prt ater tax M7 ss Retained ernngs a Bshopes Kanone ibe Ke Mish Ye Ae, 23 pretax accounting pot taken afer ducing the economic predation ofthe oman’ fie Ello depresiton wo for x purse, ‘dana the fing information are aaa: earners deprecation was Rs. 95 lion i 20809 apd Rs 105 millon 2009-10 (3 fmcan expenses were Re 13 lion 2008-9 and Rs, rion 2009-10 (ier noneaah expenses were Rs. 32 millon it 200-09 and Ra, 36m 200010, (@) Corporat tax ate 2008.09 and 208-10 vas 308 (ote Lid. bad soneoptaizd les valued at Rs. 35 milo in each yeas 2007-08 1 poban (hy The sompany/' cost of egy was estimated as 1% in 2008.9 and 18 in 200810, (Gh The companys pret ust of deb a estimated = 7 n 20049 ae 89 n 200-10 (8) The target coal tructre is 786 equity end 29% deb (Baton chet capital employed atthe end of 207-08 was Rs 695 millon eure, Enna he Beonomle Vas Added fr Deportivo Li forte ens 2008-09 209-10 (UCWA Fina ne 2008), Caleuaton of NOPAT a ee mtion, Pareales — 36.10 | Profi aftertax 1500 [nid Nonesah expenses 300 mio ‘adh ntrest after tax charge (1-030) “260 Net opera Ba Calelaton a “8. millon) For 200809 (Capi employed tthe endo 2007-08, ws ‘> Nonna ess 35 Capit employed for 208.09 0 or 209-10 ‘Shareholders fund a book ale $95 anh oan vs Nomenpitaed eases 38 employs for 209-10 ‘ean of WAC Fon 208-09 TWACe = (M4075) + (11 -0300%025) Shas +1235 = 78 TWACC = (16075) + [81-0303 0251 Beonomic Vale Add ws NOPAT- (Capital employed Cost of capita)24 Pot one: hiner Mangement 200808 = 19810 (203 11725/100) 209.10 = 233.40 - (805 x 134/100 Rs 10251 ke 23360. 10787 Rs 12573 ths Problem 37 ‘The following data eae o Morning Glory Ld (hs nthe) Froftaed Lass Dawe i 2010 Temover — 180 230 Prear asounting profit 20 Profit ater tax a 30 Dividends 100 120 Rete Balance Sheet a — Bed ct Neteurentasets Financed by: ‘Shaceboldere funds Medium and longterm bank bans Tesi Sse Pol takes after deducing the economic deprodaon of the companied ets (alo the deprecation uted for ta se Adon infrmaion: (0) Beonomic depreciations were Rs 190 abn 2009 a R210 laksa 200, (8) Hoterst expenses were R26 a in 2008 and Rs 3 asin 2010. (3) Other oa-ash expenses were Re. 64 lakhs in 2009 and Re 12 lakh a 2010. (i) The rac rate in 200 and 2010 was 30k (0 arsing Glory Limited has non capitalied ese vad at Rs, 7 ath in ech years 209 and (09 The company’s pretax cos of det was esinaed 25742009 and 8 in 200, (i) The company’s cos of equity Was extiated as 14% in 209 and leh in oe (i) The target capital sructre 673 equity and 298 del, (8) Balance shee capital employed atthe en of 200 wes R, 1380 ak Estimate the eonome vale added fr Maring Glory Li for 2008 ad 200, (CWA. nae, 2006)hanes anon ie Adar Mh VA 25 salation (a) Caen of NOPAT stk) Farieolars 7! 208 2010, Profit ater 2 370 ‘Aad Noreash expenses o 2 Interest iter a shield (1-030) it 2 NopaT rez a2 (@) Caleaation of Capital employ=d "Year2009 = 1390-70 1460 aks Yeor2010. = 1190-+350+70 Ra 110s (eaten of Weighed average cost of capital "Year 2009 = (lab X078)+ (7H -03) 025) Yeor2a1@. = (164 073) [¥4(1-03) 025] (@) Caleaatin of eso Vale Added (EVA) woss12 = 1170 Re = 34 Nears0o9 = 3162 {h60X11.78) = 3762-1708 = Rs 2054 kbs Yeur2010 = 4612 (1610 1448) = 4672-2157 = Ro. 2915 as Increase BVA a Year 2010 2515-2056 = Ra 46 lathe Valve of Firm using | Hine a) rau Suton iasmalzftarefirm wihigh erowhraetthaeitingasitsnwbichithascapit Sees ee ine the ther taformato sbout Smart Soto as fellows Fa eee ingiecmconasartsinpaceisRs Slabs Tasreuroncaptalof19Nsexpeted Taga Fine tare, Cot of capil of Sat Salton 10% ‘Rete beginning each ofthe ex five years Sart Salton expected toma new west of fete baring ec vestments nese expected ern oar Ft om capa andthe cst ‘capa ts expected to ean 0 eo ess Solton wl continue to make gvesments and arsine wi row Sa yes A a eign have eur on capo onl 1m, chip le Ue cot of apa a ta ments ate expected a ave ft ves The ast plaice and theives AL Sav ens wl aks 15 erin perpetay, wit 0 gro, ane ec stration gen etmate the vale of Star olution How much of hie ral comes Renter ce ene ne ste Sn Sn ini Ve Ml YH) eh Ba) alana ia Alem anne (282) sa peta ton svtaramenae ort (015-0% 10) watvitonnermminen tonnes (acheter) i eeu hin ame eae ng anaerobes panies Rs 2085 thie26 Pa One Proce fine rapes [Marker Value Added Problem 3-9 ‘The Accounts of Sterne Ld (SL) engnged in manufacturing busines ae summarized below Income Stement fr the ea ended tre 31, 2010 slo) Sales rene 0 Les: Cost of pods sold sau General expenses 630 Adminitrative expenses 780 Selig and eaten expenses 290 arings Before tax (EBT) Les Corporat aes 025) ‘Exingy fer anes (UAT) iat ——— lion) Eau share capa 7000 (OD Tak shares fe 10 seh) Plant and machinery oe) 2350 Reserves and spar 3150 Curren Assen. OC Lone 1800 Stock 000 reir and theres 1800 Debra 100 ____ Bank and ash balances 00 7 770 ‘Adal norman (0) The ik re rate feta ia the economy andthe pe eras The Beta of eres Li shuren ear (2) The equity shares of ds company SL) quoted he ark aon 3132010 re Rs SO per sare (8) General expenses ind R& Dexpenes of R50 milion ‘Not: For EVA computation R&D expenses are to be conser a inestmen. (0) Determine the Boonie Valu Add (EVA forthe year ed March 31,2010; an (8) Determine te amount of Market Value Added (MVA} ofthe yet ended Marsha a0, CWA. Fal Oe. 2005) ium expected fom busines in Setainn Caution of NOPAT = (Rion) [Netpoft after andrea 1079 Ads Tex ase interest [80 (4-035)) Prof afte ax before interest, R& Dexpenserrentegrated Nec operating roi after aes (NOPAT)oper Ec Ve Adanarie ie Ned 27 Cctetaon of Copal Employed __ (hs mito) ‘Share capital - 1000 Reserverd saris 350 [Rouse for &D 1230 aul 00 Loss 1300 Capt employed _ a0 {alelson of WACE Comet Equity = 86+ 127058) = 14354 Coxtot Debt = 10% wace = 4435070 + (1041-039) 0301 now s 98 = MLS89% ay 128 ablation of anomie Value Added VA _eilon) Nev operting pet afer tax (OPA Teas ens Cot of apa mpoved (Rs 60 ion 012) 720 eonomic Vale Aded (EVA) ae ‘Clelton of Market Value Added (VA) for he yearend 3s March, 2010 asker velo per Eqwtysbare > R50 ooteqity shares ovttanding = 1000000 i ___asmiion ‘Foran vaoe ‘Goan ata RE 000 te Val of ety Fund Share anita 1000 eserves Surplus 3150 Re Dajstment fs 20 Markt Value Added MIVA) 3004 Chapter BREAK-EVEN AND COST-VOLUME-PROFIT ANALYSIS Problem 4 OE Pt gf Bs 30000 rng ne yar 2009.10 he mari cont ad sling ice ‘fared ae Bx Band R16 per unit respecte fi out in ca i (CA inter y 1995) Solon Margit Satay = = Catron yg Ba? Margin of Safety = B&30.000 = Rs. 150000 e205 Problem 42 ies cerbution os. 200 00 ant afta R100 ons R000 What isis arpa of slay? (Canter My 1957) Caeulitin f Margin of Safaty = entation yy _ Re 200000 vate _ EO yaa Metnatsay = Pat _ = meso rien 2 " marin of safe i Rs 2400408 of ls) and P/V rt 3060 AB Lid eae (0) Beever sales, (2) Amount of proton se of Rs 900900, (A.tersty 1957) Sottion Marin of SafetyChapter seven snd onium Ft ee 29 ri = Margin sf to 24090009 = RA TROND Tonlsam = Marinate _ a 2sn019 ~ Re 69090 Cintaion = Sl XP/Vrain = Re 640000%30/00 = Re 1900 Fredeast” Conlon Prof = Re 1000-Ra 72000 = Re 1000 aed “Bs 10300 (1)Bees-oven Sales 1.360.000 Vato 030 (@)Amount of Proton Sale af Rs. 800009 (80,000 208)- Re 108000 1s. 162.000 ‘The ratio of variable costo sles i708 The break-even pln occurs OM ofthe capac sles Find thecapacty sles hen fine one are Re. 90,00 Alen compute rotitat 56a the capt sle, (cA oterNow. 997) — i = nt = = 2 “The profit volume rato of XL 508 andthe marin of efety 0 Yow ae reuiedtcalculse the net profit ithe aes volume Rs. 100000, (CA nt Now. 198) Solon Margin of safe Roy Margin of Safty Ratio = Meret neti Be Margin of sft RS 4g ° Rs 00000 Margi of Safety in R= VERA? 4 — pe 40000 100“30” Porc one: Feces Fn Managemen Prot Marinotsafey = Pe Profit Rs.anooo = Pet Prof = ReAnO0XS0H = Re 20000 (0 Ascertin peat when (@ Ascetain sales, when ‘ee Rs.200000 Fed cst Fixed cost = ke 40000 (0) Ascerainment of Pott 16000 Rs 00 (CA meray 1995) cree Sie =m aon Rede Ten stn a momo a _=SO™se - custo Too viva a ~=—h—mrmrsm™e som ruta — 20000025 = R00 res apna = m0 0) hea Wet = Redan nae Sioa Gat = Gn bake pct : tenan Saito yg RODE yn se fear = su feo Pt _ eb +R 0 ie oH Rs 2000 sox Re 60000 ‘company sls product at R. 18 pu Ina pid it produces ssl 8,000 unit tocar ae Fs Spit thevlume raved 0 20000 una earra profit oR ps Colulat break-even pout but in ens of rupee well ar nuit « Inter Now, 196)nape ese snd Cnet ot rs 31 seu Particulars a ‘at 8000 a _ Nae Hinges ® tee Poets) + breve con pert % saloon — setae Ganga ot VasableCot pa. = GoM ‘Rs 220900- Rs, 140000 _ Rs. 6000, 000 wis 9:00 writs ~ T2000 unis Fixed Cot = Tal cot oof uns Variable coat 8) 1.40000 (4000 ues RS 5) = asspu ms 00-400 120000 PIV Rao = Seno 199 ‘er Sales Variable cost gy = BEIS-RES. 199 = 6ou Sie wi mr cua . Tost fixed con Ba120000 2000 unk ae ‘Selling price pu. - Variable cost pu Rs.15- Rs. 5 008 aa esp Tol fede = B120009 ne iantn Prolene inthe Danks reach hong independent shins are aay ae Sates toa. 40 som so Mei cetboin nin Ree essen wS0000 otto “roznoon “Ruse ise (CK 2000 saan Pe Contribution - Pied costs = Re 20000 Rs, 12000| @) Seling Pie Let sling rice be No of unit sld Fp VE-ps) = Contin 19000 une -3/5-) = Rs. 20000 Rs. 500032 Pan One Pict nl Mason assed Selig ice = Res Conibton Pro = Re moons 20000 ns 4oo00 Veale et Sangpie = SBE Come a9 BOB ane oon entron mse cot + Prot = Ra 20000 + Re 30000 2s 130000 Contin Ra 10900 ees Comte Pa, Rs.20-Rs. 15 % (10070) = 300 ‘Statement of Pratbiiy of Plants Before and After Mecasr opacity vel 100% tes Variable cost 20 Contbton 10 Lass Fixed cost 2 0 ‘IV Rao of Merge lat ‘Contribution of mersed lan gp “Furmover of merged ant breakeven Pint fier Mere PV io (ae) a soa ‘0 (A tter Now 1986) ame TaD 100/59 = 909 75 (10/30) 150_ (tks) ‘Merged lan 100% 000 036 renege gee © copcyot teeta Babeven at = 2309 = su ine (© Fg ot Pris ay Mere Pa as ‘Tumover at 75% capacity 0005757505) — 730.00 Genoa Carer /V ra) fanaa mos rout cenen-mlooy _Gaocimy ska) (Finding ot of Tao rom the Megs Pst ove pot Desired pro — Ped cot Dsed cotbuton - Doser = este contain Problem 433 sett —— ony Direet maa > Direc wags Fed and vaviablfctony overheads 5000 Profit aor 6250 [a fh ssond quater the det material pic har eresod by 208, There was arma of Re 5000 fixed vereuds inthe second quar. The ther ors and sling pletsoeina eter ihe quantity tht shoul have ben ol ith second are tone these smount of profit pec unk aein theft quarter (CA ery 000) Solation Working Notes (0) Diet Mater Dect Wages Sling Price and Pret pa Direct material) 575007250 unite = Ress Direc wage) 6250/2500 i = Ra.25 Sein pice (pu) Rc 2.75,000/250 unis Reno Prof (pa) Rs 5000/2500 ants = R20 (2) Variable Factory Overhead pe ui and Fae Faciory Overhends fort Outer ‘aril factry ovethend Changer insemtvarabieoveriads Re 100.00". 75000 ‘Changes in prodetion volume ‘hs fag ane lable factory vehende ducing the Outer were Rs, 10.00 bt de to saving of S000 the balance ton of Ro SSO eaChapter Grterenand cos one Ft hss 37 xe Factory Overheads for Quarter as) ‘otal factory overheads of quarter "0000 Less Variety overbend (6.750 wie R20) 75000 Total ted factory overheads for quarter 5000 ‘Lom: Seng of aed factory overhead 000 Ne Fined Factory Overheads for H guaree a0 ‘Statement of Quantity of units to be sod in second quarter to maintain same amount of profit per as Inthe ft Quote = peru Seng ace 0 aval Cote irae (6.38% 120/100 2 Variable etry overheads 2» ‘etal VriabieCot oH Conrbtion om 2 tes Profi » Balance for ed cont 3 Total fixe cost = Ra 20000 Hence th umber of units be sold inthe second gurter to mln these mount of pop stn the nt guneor Tot td cost Rs. 20000 ‘almceforfedeostpa “Re 3pu S67 mis [A Company had neared nad expense of Bs 45000 with sles of Rs 1500080 and earned pai ‘RS 3 00 casing the tal year Inthe secant al seed ow of Re 30000 (@) The pf volue aio, break-even point and marin of sft or he is half yea; (@) Expected sales olume forthe second half year suring hat sling price and fed expenses Fomained unchanged daring the second hl ea, (iy The breakeven point and mara of safely for the whl yea; (Aimer Mey 1998) sotuson () Caen of P/V Ratio, Break wten Pot nd Margin of Safty for he it al year Contbation nad cost + Prof 109 = PASE Pot jy PIV Ratio “be wnt sos resk-ven Pont Rs) = Rs. 9109000 Margin of afey28 paone Pnceaf ns Morgen (Casto expected sles volume ot the soconthalf year marumingthat sling rice and iad “xpos ronnie unchanged during the recon al Jor Fixedcnt- Lose _ 45000-150000 Pai om (i Caleslation of Breskeven Pint and Marga of sft forthe whole year Fxedecosipa, —_ 900000 Exposed Sales Volume = Rs 600000 reaver aetey = Haste, 9000 re snpome srgintsatay = ama, SED 150 on 7 lene dSiopw'copowoy nome = R800 POR i ued having Gr ho fatale aor a0 ce Teton ; ran Vm = mae Miia fay rasa ae ian “There has been stn savings in the ised contin he ea 2010 due othe rstracarng process ‘The company could mata aes quan level of 3109 ip 2010 by redaniognling pce ‘Yow ae rqued a calelte the along (Sle for 201019 Re Fed cost for 2010, (Gi) Breakeven sles for 20109 Re, (Antero 1999) Solton Caution of Variable Cost fr 2009 and 2010 pyvnain ~ comsbuton —_Sale-Varalecost _ arable on con Sale Vasa ost for 2009 as = 1-5 VE 9503500000 = 800000-¥.. Ve = B.40n000 Sine the sales ohms 2010 esr oth of 208,hene the variablcont forthe yar 2005840 Re 00000. (@) Sales for 201010 Rs varie cont Sale es 00000 Pv. Ratloopera Beran ans aR une PT Ha 39 Rs. 600000 ons = =-Rs. 400000 0375" = Re 400000 Rs. 40900070625. ~ Ra 680000, (a) lined Cont For 2010 Margin of safety sls a of tal sass 2.879% "Folasalen- Magin of mafty = Breakeven sles toe -21879% = 7AI25% aed cost ~ Brelcevensales PV. rio Rs 400003 78.125/100% 375/100 = Rs. 87500 (i) Breskeven sles for 2010 Rs “otal eles Marin of safety 1s 40000 - Re, 8000 Probl 16 Rongleproductcompany sls produc t Rs pean. 209,the company operatedata marin aoe aia ks 3 EOGEO and he vara cont ok osaks wor a000 is extinatd thas hevasablecont wl go up by 104 andthe fed oss wl inerease by 3X Hae tee ching ie reqbed tobe ned n 2010 tear the same P/V ratios in 208 [pouring the same sling pie of Re €0 por ui i 2010 find she user of wits ele tobe Brekceven sles 2s 500000 Produced and lo ear these praia 200. (Cx erty 938) Solaien| 1) PIV Raton 2008) Mets Selling pice pu - Vari cot Py) Seng pie a BOREAS yg BEDE Reso oe (2) Naber of unt sold 2009) “= Fae cont 360000 vis Breakeven ist = Goncbuion pa Re ed ‘ins, marin of softy 4, therfore break even pots 60 of ui oh Tecctuntewa = Brakevenpiat —_ 30000unis ‘oro of unital ee nee 0000 (6) Pfc earned in 2009 Pro "= Total eomtiton an he sal of SOOHO unis Fixed costs 1 0 ise x Re. 2)- Rs 3.60000, Re 240000 Seng pric tobe Sen 2010, Varabeostpasin20I0. = RS S280 (RA 48+ 480) ned cot 2010 IV ration 2008 ‘Stace P/V ato is 20% therefore Variable oss 8% Hence the equrd sling poze = Rs 5240/80 = Ra 66‘Number o units tbe preuced an olin 2008 tocar the sane pf asin 2009 Profi in 209 "2400 Pd comin 2010 Rs 3.74000 Desired contbuton in 2010 = Re 248,000 + Rs. 378.00 = Rs 618000 ‘Conbtion pn 2010 Re 80-Rs 5280 = Rs720 ‘Nabe of units oe produc and oi 2008, "Fine cost in 2008 na 61800 oourbetion pan 2008 * R720 4a Alb maufcin company rae font motel of crs The ben eet of Se ee proved Dadecedourpt 00 wl Mera Tour Spied oa lowed eed cons sat rt Sate () Profit with 109 increase in sling price wil 108 reduction in sles ome, (4 Nola be achieve to maint the eign prot after +108 rein metro a the eialy bade slg price pe ie, (Canter ow 1930) rscatsling ice (Re OORT ay Ads 1S inten (1750310100) Fresco ser volume ese 108 decease «4000 x 1/100) Revised te volume oe Revised sales revenue = 36,000 unltsX R6,925 = Rs, 69 lake Labour Direct expenses ‘Tez arable costptr Bosker sed Con olmes Ans aay sateen (2 thn Sele e100 {er vaste con (950 wn. 1100) sseon ener cs 250 ee oe ay Nea He ww Ta Re 76 ir to Caetano Sale to ached onan he iil poi of Re 5730s ep) Selling price = 1.750 ouedsan = PASLSt+ Datel _ Ma 22S0 tin =RESISOUIY oy, Conon pa Sopa Probe 438 ‘ome he prepare he folowing ge of sl: Product ‘Sales - ee x onou0 2 Sina “The ed cons amount Re 00000 Yousrerequirato reve the rales mix cnsrea prfitof Re. 10900in sucha way that nat morthan Re 8) 000utsals of Product Atspomibcand hate prosentetalvlacofslesshondnatbe are (Antero. 200) Current Prfiity Statement ms 2 ‘x 6an900 <=07I0 80 a {5.4000 30/100) 27000 ¢ (Ge 1900000 25/100) 20000 Late Fned cot ‘1000 tos 0,909 Desir prot Re 10000 Desired contrbution = Fued eas + Dested profit = 800000410000 = Rx 6.10000 Constraint (1) Sale Product A att exceed Rs 600000. (2) Present ttl vale of ser ce Rs. 2500000 should note are42 patone Pines tan Magen Ranking based on PV. Ratio Ranking 1 i m0 Inert in Sle fA by Re 20000 yl rede the sale of Co Rs: 8.0000 as) ‘Tora desired contrition i000 Lise Contbaton from Product A(R. 0,000 40/100) 320000 alae conto egured from BAC 0000 Lets be the addonl sales amount of Product hen we have the Flowing contribution gusto: {.ono00 + «) 30/100) + (00400 =) > 25/10)= 43000 [sme ofan] = 2 = am 5 =m 2 =a tito ont i 5 aaa : ao 7 Sie inst rtm ‘Acarmpany mansfactre product cure tiling 808 capacy with turover of Rs 00 at [Ra 25 per tt The con dan under esa can Ref beta Labour cos 623 pe unt ‘Server con ting vaiecost fe 8.78 pee uni) 18000 Fed cos Re 9,00 upto ‘iv levet of output beyond hs a adonal Rs 21100 wil be ocred Cala (@ Activity level a breakeven pot (G) Number f wits o be sald to earn a netincome of of sales (i Acti leve needed o ear pf of Re 95.000, (i) What shouldbe theseing price peru i rel-even pint isa brought down to 4 stv Ive? (Cher ow 200) Working Notes (1) Caleulation of No.of uns ld at 808 capo Sales Re. 800000 ” Siingyeicepa RIS ——hopes Seskeren ane cat vote Pte at 3 (2) Novof unite 1008 capacity = 32000 unis x 100/80 = 49900 wate (3) Seeegstion of Senvriable cout ino Pred and Variable Components acd cost = Total cont = (Variable cost pi. Noo uni) ee 180000- (Re 375 > 32000 unis) Rs. 180000. Rs. 120000 (4) Caluation of Total Pe ort (@)ars0¥capaciy = Re 99010+ Rs, 60000 (@) Above 806 capacity = Re 18000 + Re, 2000 (ad. fixed cos) (9) Caleution of Contbution Selling pie Variable cot Material cont Wari coet (component of emi-vaviable cost Teta o Cention — ow (6 Profit at 8 capacity level ‘Les Variable cost (200 units Rs. 1750) antibtion ese Fined cost Profit (0 Calan of Aci Level at Break even Pik Find cost __ Rs. 150000 reskeven pein = Pascoe = RASA 000 uit Breakeeven Pont Gingsbaton pe ‘RTO oe Activity ee at Break-oven pint Breakeven unit 2,00 nite 5 osacpaciy at 100 era 49.000 unis Cclclation of nursber of itso be ol to ear anes income of 8 ales Tet numberof units so be tocar a pf of 8h sles oting ice Unt arable cost + aed cost Netinome a eas = RAITS Ke +R ESDODOHES 5H) se 19se = 150000 Ss = 15000 r= tstooo/ss = 27273 unite No. units tobe sald a ear net name of ofl 727 ule (a) Caen of etviy level madd to earn profit of RS 98,000 tet ws assume the expacyexcods 808 level then,4 patone Pinel nel agent Desired see Phd om + Desired "Contin pa Activ level chev tear profit of Rs 98000, = SRB op (0 Caeato fing pice psf kv oi brought dow to ON a ee 5.33 units = san oo unite at 6 evel” = 4,000 unis 40/100. Toe ste Let eliag price bee Sling pie Unite = Variable cost + Fe cst 16000 units = ge 750% 16000 unis) + Rs 150000 aco. = 280090 -+ 150000 000 += 430,000 x= #30000/16000 = 26815 ‘hese pie to be Meda Rs 26875 ps to achieves breakeven a eel apis Probl 4.20 ‘Acorpany manusctres singe product witha caps o $000untsperannum The mmarzed brottably statement forthe ear asunder ‘a ‘Soles: 10000 uit @ Re. 1S ps 7500000 Direct materi 30000 Dict shor 20000 Production overhead Variable 000 Fed -sm000 Aminsation verted (aed) sao Selling and dtsbution oneheade Variable 22000 Feed 13000 1250000 Petit 2300 You are requted io evaluate he fellowing opin (© Wha wb the rou oles requed ear target profi of 29% on sl the packing Improved at cnt of Ret porn (0) Theres anoffer rm large eae fr purchasing 300s per annum bjt to peving cking with diferent rand name af oan of Re 3 peru Howerer aioe ee benoselioganddsurbuton expenses Alo the lla inany wan aecticcemeny eset business, Wat wl ete treakeven price forth sana fla? (@) Hanexpendiureof Rs 301000 made on adverts the ales wn neeas ron the present level of 00000 wits 120000 unis as pice of Re 1 erent Wil tar epee Se iste? (6) the sling price reduced by Re 2 pr un, here wil be 100% capac iaton Wil he "action i eling price be jstied? (Arter tay 2001)herent Gncren and cau Pt ss AS satan (9) Caleulating of Contribution per uit Selig price o Direc atrial Direct Inbar ‘Variable production ovaheade Vase seling and drbuton overheads “otal vara cost pa ® contibtion pa 0-0 (alealting of Tora Fined Cont Production overheads Adminstration overheads Seling snd dation overeads (Caleulton of Reve Variable Cont pu, [Ad improved Packing ext PVR = Comtnon yoy = 18450 109 ~ som Sale 5 Cobultion of Desire Sales ee be the deed sles Desred profit = 258 of les Desc sontrbuton = Paw cast +23¥0f © ontibuten ‘Sales 00000 +025 050% = 6000004025 os0x-025: = 400m00 02s: = 400000 2 = 6000007025 = Rs. 2400000 (8 Calealton of Break ten Pie fran fe of 30000 uit ‘Les Vara sling and drbution ved Revised variable cost _ even pris for adonal oer of 30 es) 390) $60 20046 Port one: Fees arc Mangement Current ined cont ae absrbed bythe existing actly and therefore fine cost are evant Gi Sustienon of Bapeadiure oa Advertisement es) Nev sling price pax 1800 Ls Variable cost pa. “eo Sontbion ps iso es) ‘Faalconbaten 1200 ws RT) ‘aoaoo Les: Preset aed cost ‘0200 Adventsement expenditure p00 s,00000 abi “381000 Seogeson Wit an dtl expenditure on adveiting the profits ncenel by Ra 220000 READ GOO Rs. 250000) Hence I used fo alinal expen on advert. (9 Butieaton to reduce sling price to achieve 1008 cacy tiation es) Lies Variable cont pa “650 Contnbuton pan : 6 oo es) “Total consibaon at TOW capac wan 375000 ese Fed ont 00900 raft 5375000 Sogeaon- Since theprofiisinereasedy Re. 25000 e375 00: Re. 2.50000) thesling pice [SSSRGU by Re? pr for scieving 1008 capt iasdon Hence redachon i acing pce x Sucesed ‘company produces single product which sll for Rs, 20 per unl Variable cost 6R.18 pc unit and Feed once forthe yea Rs 8.3000, Required (@) Calculates vale needed to eam a profit of 1% 0 sales (6) Calculate sls pie por ito bring HEP dowe to 120000 uns (6) Calelate margin of aft sale profi Re 60,000 (CALPE Now. 2007) selon (a) culation f sles vale nest arn a putt of 10% on sles Ses = Variable cot + Fed cot + rai Lets unabee 10s ~ 154+ 630000 + 0.1005) aov- 17 = 630000 Se = 530900 == s30000/3 = 210000 Sales required tears 108 profit onssler = 2.19000 units x Rs 20 Rs. 4200000,(©) Calelation of ale pre pr unt orig BEP own 0120000 unis ‘At Brealeven point, eles = Variable com + Fed os, ateling rice be 30900 = (120000% 18) + 630000, "20000" = 1800000 + 630000 = 243000120000. = 2025 ‘The sling price required is Re. 2025 pr unt {chaleulation of margin of slety sale if profit Re, 60000 Sale = Vaibl cet Fed ost + Prof et eling pie be Dor = 1Sx-+ 630000 + 69000 os-1se = 65000 = 6900/5 = 138000 Sales squid to eam profit of Rs, 60,006 Rs. 138000 unis Brotkeven sales Faedcost __ Rx 83000 oe Gonerboiongs, Res oe Margin of safety (unis) = 138000 unite 126000 ite = 12000 units Margin oalety Ge Rs) = 1200 wis Rs. 20 240000 Problem 422 ‘cornpany has fine cost of Rs. 90000, Sales Be. 30000 and Profit oF Rs. 6000 Reguie (Sas volume fn the neat paid the company suffered als of Rs. 30000, (What the margin ney fra profit af Rs. 30000? (CA PCE May 2008 Solion Contintion = Fixed co + Profit Res0000 + Re 60000 = Re 1.0000 Contsbaton| PX. Ratio sian a0 = PELE 5 99 = som Rs 300000 ()Cateulation of sas olan in the et pro, th company seed aa 29009 Conon = Ped cos Los = Re sno0n-neS0mm0~ ms. 60900 See = Ra o0nos0 Rezo {i Clason ago sft for probit of 90000 ~ frott__ nas 7 vk ~~ as Margin of safer 1500005 Chapter RATIO ANALYSIS : COMPUTATION AND COMPARISON OF RATIOS _ TE See S| TCA Fina Nov. 2000) (crores) (68226 on sales) 330 250 ss as Capi +Debe = 1047 = Ra Terres Catehopes rato Aas: Cempuston and Campaien tiie 49 (i ciation of EB sales destin to Rs 4 res (crores) Sales a $00 ese Vata cont sass) 233 Cantsibtion lst (i AscsTarnover ‘The nuts ase tumove i ses, where athe company sets turnover oly 03525, hows ‘ery posrtlandon of aetain buna Problem 5:2 ‘he average pei of credit slowed by company tts customers st year was. month a the cage amount of debirsuaske 1D Tommercae asa profil ticconpans ooh ee Pid of cre during he current year Aran tn average amount a Jers terete eos Fis fhe company has carrbtn sls as of ah what atonal onto hes been amed by the company during the cute! yar? "MCW Iter une 2000) Seltion c Debtors collection period CE X12 months ‘caren yea sles 2 months B00 12 oaths ‘ret sales “12 Credit sales x2 montis = Rs. 2500000 12 months 2 Greil 0000000 Cre cle = So00n.0/2 Rs 1S0lsne Las yor sles 2monthsx Re 10bkhe pm. = Re. Dake norese sles oer at year Re 150-Ra 120 = Re Olas Incresein contribution ve incre sles Rs Lae 40/100 = Re 2 ake ‘Andy Companys aut shares are Being aden the market aR, pe share wih price caning fate of 8 The companys ded payout 72 Irae D900 uty sarc of Re 1 each a ns Preference sare Book vale po snes Re #2 Calculate () Earnings pr share) Net income) Dividend lel, nd) Return om en (C5 Fina June 2000 Solon (@ Famings Per Share Price/Earnings Ratio given rites = Meters Bs = si/9 kas( Netincome = EPS No.of hares 6% 1.00000 Haut shares = Rs.600000 Dividend pr share ‘ark pie per share Net income Dividend payout ‘No of equity shares (Dividend ve Diidend per share Beg — Tar Es Doin yi = AP cy n fv) Return on Bquty = SetBeore = 7 “Euity aon = eX 100 =H. emedonmatn Rs. [00000 Equi shares bs iam? none 800 Eas Problem 5 sec !00 = 142650 (based on bok value) ‘company has prof marin of 0% and se tumove of tines What the compaay'ertar on inves? How wil tier on weston ary 10) Profi margins increased by 58? (0) Asset trmoveris decreased to 2 nes? (Gi) Polit margin is decreased by Shand se turnover fincas to 4 ines. {cs inatbec. 1995) fusion of tnpct of Change in Profit Marga and Changes» Asst Turnover Ret on Profit mara X Ase runover (pri margin erase by 3% ROr= 250x3 = 75% (a) ase turover ie ecrenzed 02 ines Ror = 200%2 = 4h (af proimagin decreta by Shand se turnover increased to 4 mee ROL = ISH4 = OR ‘he cap. (Grown Co Le flows 10 Preference share of Rs. 10 ‘uy shares of Re 10 each as) 5.00000 90000 ‘anan060hotest Asp: Cmpuon and Campanas 31 tional infrmation: Pri afer nx 508 Re 150000 Buty iden pl 108 Depeelaton| 60000, Maret pie per eau share s.200, ‘alate the folowing = (9 Earns per ake) Price carvings ai, () Ne Tad ow {5 inal une 1997 & ne 1995) som (Baring Per Share 1 Net profit ater preference dividend x 1509000. 500000 ‘Naber fey shares 7090 Benes (0) Price Earnings Ratio Market pie pe share 200 = Paring pasate e429 aa (i) Net Fonds Flow a Profi afer tax — 700000 ‘Nh Depreciation 0.000 Problem 5-6 [RBC Lis mae plans forshe next yer I inated atthe company wl employ ta assets fa-noo 0 Sowet'the ts gine by bored capa a antes ato 1h er Year ‘heekeeteot forthe year ars cated rs 180 000andalother oeratingepensesarestinated Pi The unk wilted tocustumersat SDNOF he ret costs Incormeaxrte assumed ores ‘You are required to calcu () Net ptt margin i) Return ass) Anes tumover, so {Gp Return owners egy (5 inal une 1985) Sie (Ga of ies cont Rs 4.80000) ese Dist conte (Gree profit {os perating expenses Eamings ele eres ante tess merest on brow apa (26% on Rs. 00,00) ring ae tax er Tax 508 Pritt tax 1 NetPro Margin ral 99 = Resta cto = 652 Paonia agent erg feet and nO) pg _ LONE =8) 59 yoy Tole resco! (2 Ast Tasonr Sale a 7000 . Toate e500 — (Retr on Omer ay eee 10 ous Probl 5.7 ‘company i capa fallow ‘Te Praerence shares Re, ach (Ordinary shares, Re] each ‘The fowl informations relevant a snail year st ede: Profit afer taxation a 506 ~ ae Cop comitinens 240000, Maker pce of orinary shares Ret Ordinary vend pid, 206 Depreciation Rs 1.20000 “ouare equi he allowing owing acca worings Died onary SESS Eanes © Pncesaange G8 ra Par coreg Read Rae Teta abet 159) Seiten (© Dien Yeon Orhry Shares pend * at pce pera (arming Yi Pei ater ts -Preferese dent Nomina sar value Ori Sarecpaal 20042900 0 gy ta ay (© Pie ato Mae prof saree aes Prt 5200-42000 tx Preference dividend No, of edinary shares ‘10060 PIERatio = 4/0305 = 128(8 Ponty Percentage Prserence dead Orainary dividend (©) Net Cash Flow Per Pat [Add Depreciation Lass Preference dividend Ordinary dividend Problem 5-8 Calla he PE theft: Euiy share capital, 20 each) Reervesand surplus Secure Ioana at ‘Unsecured ean at 129% Inveements Operating roti Income-ax Rate 8% Market prie/Share Re 50 Solion oro ‘Operating pre ss Inerest on secured aan @ 158 Unsecured lane @ 1258 oft before tax (PBT) ess Ieomeax @ 50% rf ae tax (PAT) No.of equity shares _ _Proftaferae —_ Re 1000000 Naofgetyshares Re 250000 Maske pee pershare = Red Fiera Market pie pe share/EPS — aa a 320000 15-6679 0000 6628-100 Re) 05900 532000 Saz00 120000 52000 2900 320000 342000 3.00000 as) 0.00 500000 sop 00.000 (EA Final 395) es) 125.000 = Reso/Red = 12505 Parone of onl Magen an redo lacy Sone (Gross pri aio om {Grom raft forthe year enced 3st Mach 2010, was Re 00000. Steck o Sa March 2010 was 20000 more te at waste beponng uf the yea. lle ees bls payable wore E600 abd Re a respecte You ae required to aula the vale of) sales, (2) sundry debtors (9) sundy creditors and) {loting std ad sles pepase ste ore famace decor bo the ena ipa of he rele (Cine one 2008 Bee 2000) as rept. 5000 Rae eel = 28 - =. €) Sty Dat SSE Arai ow wy = 3mm ———— oe Yara ong RE OTT Tan iio ‘ain Sayer sim ©) Sd eration Pact Sac plesk Cl —— Sova ds 0s S) ‘amo ten nse ‘an — a0 Cris ay =F ns arn slg Rd RC HOOT See? Lao Sar nly cere sani 0 ctgsesk _ ws ot el i ken) ano ‘ etom ee ‘sea ‘et Opening stock be Claing ok = 3+ 20000 00000 = 2 +2100hate thas: Comouon snd Compaen os $$ a = 1980000 = 990000 ‘Thus the openingstock = Rs. 990.00 Tome conagweck = Re990600-4 Rs 20000 ~ Rs 1010000 Probl 5-10 rae es 200210,acompany hassles of Rs, 6000.18 vrale cot were Rs. 30000 ane Fephade es 24000 he cpl employed was Ro, SOD. eee er eine company was tore arate) tofncrease return of capita employedby 38 The Presiden eed chores objet incase of allowing alternates {Insts vome with o change invariable cost adept emploed. (G) incon wth no change a sles or apa employed G trcanttenpayed wth nochange incostsorsnles volume, CMA FalJune 19991 solute = = oy se amo ase Cost sible cart 00 aed cost ‘noo 4000 Profit tore Tax “6900 Return on Cepia Employed ‘Capital employed = Deir Return on Capa Boye Tuer) +38 (dct routed) = 8 tent Change ates Vtame with oo changetn variable cot anal ele Desred pet = Rs 50000% 18/100 5 7500 Peeler = Verte cont + Fuad cost + Deed oft a sooo Re. 24000 Rs 7300 = nessto nareteinsnesvlunc ged = Re 61500 Rs. 000 = Re 1300 a tno ncaa with ochnginslrorcaninbonpyed Sales a ‘60.000 Centon npc ot ore Bxpted Ped on ‘Decrease in Fed Cost ep 24000-22500 = Rs. 1500 aravet_ Change Capit Employed, with no change in costo ses volume Required capital empiosed TT POT Re 600 he Rat of Return 15% Panictcnpleyed = Ra 6000 100/15 = Re. 40,000 ecrsse i Capt Employed Desired “Ep soon - Re 40000 = Rs. 10000Problem 11 Following information are valle from recent econ of M Lad, eke Stock rover ato : Colection perio or db soa ava ac at ali win gor nhl ei Meade addon anal sales of Re 20000 ving gras al ee Se eT suse Ra oe sed aoa ck of aw cad cll ts eh [5c Fae material cous, o exiting products as wh the nea pct ccna Sey ee emented how wil affect company’s key rats (tock turnover rato ad deb TCA. ial ne 199) as Miia “Fred, ‘ona —~"290800 ——Tonoor es Cot of aes Zoooe 140009 40.0 ros prot Sooaa0 0000 roe ro aio 35 28 Caution of Pred Stack Bing sdook Re TMD TTOO KAT a A Abts (14000 %75/10 > 13) Projected stock ‘Projected Stok Tumor Rao comm x75 a er Rs 135000 e130 Caeuaon of rejected Debre as ising dobro (Be ToDR000712 wonisy a Ade Adon (@s.200000/12 mont) sa, Projected debtors ede Colston Period Pree DOR 54, Pa N66 aos 5s, Sales Ete = Bae 65 = 38dae Problem 12 ASuae dome salam jon Pojeced tcome Stent and Proje ‘Balance Sheet) far the year 2010-11 on the basis of ‘the following kites infurmation: : =a ™ i Sale Re ioerores Expected growth rate an Net profit arin 2 Diend payout ratio an Texte (assumed) zyChapters toh Compunon nd Comets tte 57 Share capiae Pid ane Retained ering ‘caren ase mo ‘What willbe the dividend rate on the Bs of shove dividend payout ratio? Youmay make pesesary assumption TLCWA Final Ose 1985) Working Notes (Rebbe) 0 ee Sis 7000 ‘40% Groweh ‘0 ao (2) Calculation of Prof Before Tax Profi afer x 208 onsiee (Ra 1007s 707100) 0 ‘Add Tax @ 50% on Prt before tax 20 Pri Blore Tax Ea ®) ‘Caleuaton of Dividend payout 06 of profit afer ae) 1 Re 260 lake 0/100 = Re 12 ks (6) Computation of Cah nd Hank tances Pofibyorcisx [ALL Toca in reo (0% ierese) 21s 718 Les: AR increat in current assets 1 ‘Adeance payment of Tax 250 ass nrene in cash and bank laces Projet income Statement forthe year 201011 (Rs) Sales (0 growth ate) 700 Profit before tx (00040100) 30 Lise Tex 508 20 Profit ater 230 tse Dividend an Retsne earnings 168 Projected Balance Shoe ost 3.32011 (Bis) Source of Fund a ‘Shareholders Funds ‘Share cpa ns Retin eaming 31s 3158 recone Pinot Mean ‘platinum Pe Asset (os ler depreciaton) 0 Current sets, Loans and Advance: ‘ash and bank tlances no ‘vanes payment tax 20 Current Lisi ad Provisions: ane and abe Proposed dena Prowison for tax o Net Woeking Capita ow oa aa ET] Theprojcted cash operating expendtare of compat fr the next year 2010411 sR. 1820. 1has ‘Tena tore year 200.10 kei) Ta ee tn 00 Ss 1300 100 “Which isthe best performer aa pr your assesment and why? CWA Final Dec 1994190 Paonia Haagen Sele Less Operating cost, pert pra my Operating mst ® Seumnencoptalemsbyel___(yt)x100__3o_ toe ‘es Basing ths eure on capital cpa B Lid it bax planer wesomcion ed Tacs rator ofa cinpany compares lady standards ven Sl, Comment on each anda ener nl eo ae ee = Taday Aaa Debtors’ rover aio 6 * Stok teroner aio. 0 3 Net pra ratio es 2am Totadebt otras _ 14 0% (TWA nt bc. 1555) ‘isl rtois 2 The company postion in above the normal valuc and the industry sandara Tas ay ako be deste eeteee a (© Debwrs Turnover Ratio The indaty standard indicts an average enleton red foo polos bee, (© Stock Tarover Ratio The tckismovng er soy Ove theres exceaestock in Un company: Pee is has bond up tae carers est sahume hat to be constderaiytnereed and ack ee cea (@) Net Prot Ratio Scorn eran weary compe ‘overall potion ne Indy. Te cle Focsogs Saeko ssl rslaton and redaction ol te cot of prodecton, (©) Toe Debtio Tol Asets The percentage dproportnaey ghia ne sare dat trae propria of dt ine ext strane Pos aca omponént means oo bgh ais or ens ecto Problem $:19 Gn elo are sme information rgaiing XL Yous lo proved wth some ky rat othe Fauld twhichX Lid bongs Youarerequrcdtecasuatc oemcrran ee Sempare the eh ity norm dpe our commen he roomate‘Gapter5 ato Aniss:Conpuatonancanputon st atae 6 - Balance Show of X Li 3122010 ui shaw oa 00 Net fdas SSS 0008 10nDebentire cat 00000 Sundry eretors ‘Sundey debtors 750000 ils pasa Sucks 1230000 Other cre aie Ex] “Thesae forthe company forthe ear ending3132010amouned io Rx 6000000 andthe gross rte se 1700000 eee Tey No Tacos Garet ao = Sabet 8 Sasi © Satta aes 3 Grom ott ato ie {REMAP 207 semen 7 Celso Rats Iycoret Ratio Lament Ase an ow are Unb : Sak Debce — = 800 sales Sahs/stck = Sale (Wsatoal ance = SHO Is Seopa gy = HOM gy a4 (Soransrasenain = SEAL gy sop = 230 canpron of XL Ration ith nds Norms Rai Xtand Coane 0 cuenta 278 250. Thecaentavufthe company india ber ‘Becterm tere poston seconpaed tke Intuny Batcompoion al cuentas bee ‘itinerant {B Seiebcom B83 Th corpanysveage don clean pod Is iargaly fs than the india ‘ndents better management of recast Gy saaroek 8) ndeates exam carping of inventory a Compared to nds The fw amover ao ‘maya be dato lower ter volume(4) Sales/Total assets 1525 The company has elther excess investments in ‘ 7 Eee ieee Seas AN a tinge pons ee ls Indusey average may be due igh cost of ‘roduc wer sling pec robem 5:20 ‘he summa Balance Sheet of RK Enterprises ato 3-3-2010 given blow with other relevant ance Sheet a on 3132010 se uy cil HIB}000 Fred a ey ro Resevestn solos ‘moo Cath 2000) Send cere song Datos sen 8 om einer es) Se am ss Cast of ration of ods smn ‘00000 Lew: Seng nd adntraton 1350000 Natpoe 3000 The eet day average inp ranen ow Indy Average Debtors mover o Inventory Turover(Sle/nventon) we as rt Sle * Saker ace 3 ‘acl the ave Tato for RC Enric cre The sme wih th nd args ae SSeme ely tea rer ne) leon o Rats Cunentaets —_ 3209000 (0) Cure Rato = foreman an aay Cust anes-Siock _ 2100000 _ (© Uell Rato ‘Current lables ~ 1400,000 ae pion sles = 200000 (0 ver tuconee = St sam Sele s2aaon0 (@ tovenory Turnover Tiventory ~ then.hope tks Compu nd Campsien st Ras 63 Nets Neto cigg = 250ME 100 = 6738 (o) Notre Mara spay = SAS 100 Salas samo (6 Sato ets - = Bane =o © ear aakance ‘00 . compas of Eerie Rion wh dty Nos Gy area iaiy SBT Thgcaretrtnolecompanrnber ani Mary Thecompostionelcurentasst0b tne to ascevtam ences vestments I (6) Ligeia Ratio 1s 14 ‘Thesompany’ tidy is ara beter than {Dendoney everspe But major poton of uk ‘Res ree orn of rcetblesLiberal debt SNE putty and eltncy tp recrales Tanager may be the cause or lockingwe of ‘vent ects rccables fe DevorsTurnover 280-89 The company’s debtors collection pri i ‘TEscotiy higher ae compared to the ndetry ‘erage the lw urmover ato may Be de 10 ipefncyincllecton of debtors. (@ wvenoryTumover473—102_—‘Te inlets exces carrying of vento 3 otra ost the aw tsrover rato ay See wo wer ele vole or excess Peete dete in inventory Sed icliiency 1 fe NevrefiMargn 6796 9% The net profit margin Iowa a compared Tel itm be dutoigh cont of rodcion ‘Sl sling and aniaton cos. ( satstoat ses 087 2—-‘Thecnpany a er exc estes a rower cals performance problem 521, Fe imac os the flowing Balance Sess as on March 3, 201and Marc 3, 200% Balance Sheet arcu Sousa of Fans Shareholders Funds Laan Fund Apnliation of Fund Fred dee (aah and Bek Debtors Stock Other current assets es Current abies(64 Part one: Pcs snc Manaemen ese Cost of Good sold ros pri {es Sling, Ganeral and Adminiratv expenses Eng before Interest and Tx (EID Profit before tan Petar ae Reguinat (Caled forthe yea 200.10 (a) Tventry tumever ets (b) Pnancal leverage (©) Return on favestment (RO) (@) Return 00 Eat ROE) (6) Average Colston Prod (8) Give it comment on the Fanci osan of KL Limiod (A PEA May 2006 (0 Computation o Raia ‘March 3,309 (©) Inventory Turnover Ratio Sent god cold oe ig stock or (0 Pant Lverage ar woe i Er a (© Return on tvesment (RON ee Fay % 100 = 2800 38 roo saa ‘ia employed ™ 1 sae*100 5% 10" (@ Reson uty watt yx 10 = 1a TB 100 169 (© Average Colestion Paid Deir as _ Ses Bs = He (Wie Comment a he Feancl Position of JKL a * Bata tumever rato nad om S2 tines to 128 tne. Thi cts the ‘sluclon ives of stack anderen sles tutored aeChapters to km comouton nd compan te 65 {lower the cushion for paying inert on borrowings The nreaein reo wins the reas {nvskss wo over geting hich conitaesostramon Prolite 1 ThereigestecpalipROtrom 128810256 thamay beductoincrezcn ince frm ras {Ste of shares apd ionn fund fo expansion, neerzation or new ivestient propor and Increase snot ree niereae of companys publ. The return on ety har le fllen fom 1265 to 1438. The current yar PAT may ot be {afcent for doaron of vdeo secon sles and reson in invest in debtors balances ss rete a reduston Gt average calcined from 307 aye a6 days ‘Sunrise Balance sheet and Prof an os acount of company given below. Determine the ing rtoe and comment onthe health of th omnany sey You engument on he ait Inventory tumover Proit/Assts employed Prot Net wort Average realtone Debi Haut ities quip ‘Secured anne verde Parca Manpower Epersy Depreciation Selig and distribution Pro aance Sheet 58 eck 126 Stocks 60 132. Debors 20 175, Bank balance ns. iio oft and Los Account Racor Parle Recor 8 00 _ i TLEWA Final ane 1995)16 Paton Pinel onl Marapemet (0 toventryTumoverRatlo = SS = a Sale 20 veriment Tarver Ratio = Zt = ua (6) Sales Maran = Bhs = Sx = rae = Mo = x1 = a6 Sales zo - (9 NerotewAsesRato = 5 AT x100= (8 x 100 = a1 ear 4 ©) Neroitio Nat Worth Ratio = PAT 100 fxm = ea Suny Debs x 5g = Bx 355 = es, (© Average Debtors Reatzaton = Stor Debtor i 365 days ong teem debt Deb teuiy Ratio engterm debe = uss © deb a ae Comparison of Company Performance wih the Industry Peformance (@) Inver Turnover es (2) Investment Tarover 1a 15 (3) Sake larg (Aero) seen am (4) Prof/Asets Employed si am (6) Profi’Nat Worth 8206 13 (e) Average Reaiaion Time 365 dave Baas Detar Eauity 15s 2 (@) The inventory tumover ao of the company ese than the industry average. shows the ‘nafcencyn working capil management ore fundrarlasked niente nee (6) The company’s investment trnover rai alo Ise than the indy average rai. The mp should take sep prove teat, (©) Thesales margin ofthe company i shy beter than the industry average (@) The companys net profi o ast iiter than the ndsty average, {@) Thecompany performance snot pressive when tenet profit ont woes compared ith ‘he indy, hr can be mproned wth near of the de component in hep (6) Th companys elation of debtors sso than the indy average shows the eiincy in management of debtor balances (@ The company’s debt component nthe total capital lesser than the Inustry average. The opany can ake advantage radeon ely by nducting mor deat the eapalempoyed‘oapters Sti Asi: Cmputson ane Campion fats 67 imi Problem 523 ‘he onriStaterens of acl AMP rahi Line ro der Bane Stet aeataltseh 0 tea cree) Fania 20 308 Sous of Fond Stared funds ‘harecapit ua on eer ondsutas 350 130 soot io Lean and Secured ans 2 Francs ne ogaton, * Umer ios im us ns ie sao Appston of Fans: Tred cts rn 061 Ledeen Sts Net bce 330 opt workin ores 2 os ase ue everest 28 mm Chant vets Laas and dra Invests 209 Sindy dato ous Cash and bk nance 3206 eos and nvancs 308 ina tes: Curet isis Provo aren bites 10.108 Provsone sis ey ‘a ie er Curent ses 008 sab Ne Dale iat ea = jose 501tan Loss Account Forth yer ended at March 2010 ‘Sales and services Other income (Cont of mates sa 10996 Peonnel expect 258) 2203 Other expenses 36 pais Depreciation 49 aa Lest Transfer from revaluation ecrve 7 i300 1586 Pro blr tax Provo ort Deford ax Pro afer tx Reis 9) Compute and ara the Retr on cpl enpoed (ROC) asp cote cart ame: on sed Roce) (0) Compute and sale the Average inventory hldingpetid and Average cll period. (©) Compute and anayethe Return on equity ROE) by ringing out clesy hc inpent Pesci leverage, (CALPesNow 2003) Working Notes {alelation of roe Aer Tax scree) Paris Income om sles and sevice Peronnel expenses Other expense ost of pod std peraing pri ‘ess Depreciation Operating prot before terest nd tax |As& Other income Prof before nee and ax Profi before tax Lee Tax Profi ae tax‘hope atk campation nd Campion is Cllcultion of Resor on Capital Employed s. sror) Parcels ao O51 200-08 Toul ant (Soa : @ wone 304 ese: Capital worktops 7 “a Investnente 2 m Uoane td advances 2043 im © 2358 1962 opt Employed 1958 130 (2)computation and Anlse f Return on Capa Employed in DuPont Chart ame work (0) Return on Capital Employed (ROCE) pre alt rer aa Sale ‘Sales ‘Capital employed 4 Sig lt er ee an Soa 1156 190 2008.09 = 1385 5 199 13.69% © Opin Pst Magn ig ft elas andy Income from sales andservice 0) Malcom os son cin = sarm ams = 08 pa ™ 08 say = 408 (Pea Epes Ws aoe = 252300 = 108 som = 2 1 = tame B36 17849 2 on © Otero es ome sisi ants = Eco = sae (Decne PA fa soon = 100 = 208 1 = se) = 2408 7436 =a ra (©yComputain and Analyst of Average Inventery Holding perk nd Average Callcton pei (0) tnvenory Turnover Rao Matra consumed ‘losing inventory 15178 200.10 24s(2) Average Inventory Turnover period caged daye 2009.10 = 2 = 64 days 2008, x oa » (9) Receivables Turnover Rao ‘come om sale nd service Ching undry debors Bass 9468 208.08 x = Says me, cl oe = 10s {c)Computation and Ansys of Return on equity (ROE) by showing the impact of Finan everage (1) Return on Ego Profi afer tax Sharlene 2ooe.i0 = 188% 100 = 14sem 2oos.09 = (2) Retwm on Aste ROCE-0) 2000-10 = 22076 (1-035) = 139% 2008.09 = 1Ha39(-035) = 1B (@) Texto PBT amooi0= “cup = amy a8 (oan ano ade so 2S x10 = 2578 0 6 hacer Pde Tt Pde 1215 x00 = 13618 00 5c 100 = 28398 Zo x10 = amy $29 1m = s5900 raps - Return on eaiy igh higher than Reta on Acts due to nese amount of debt inven ttl aptal mplonescaters ate Asis Conpuaton an Compton Faas 7 Problem 5:24 rr olenang dts re extracted from the accounts of Super Chemicals Ld, which manufactures iy one profuctinvngelocaton (ae) evo asset SE 207313008 Grom fae Bes aie SS ‘Camlative depression 936 sre9 san ‘Value of trademarks incded Te ed st (et deprecation) 20 0 0 Capital workin process 89 os sl Investment iste debentures 2am 2136 2079 Inventor srs 40 1s Suny debtors som ost 6 ‘Advances for prchae of eal equipment 2 8 ua Other nas advances 9s 174 19 ‘Other current assets %6 sr 7 Sundry eens 2 set 2 ‘Term las de or repaynet within 12 months 100 no 0 Provision for expenses " 102 Neca am 9636 9793 Interest 18 Lt as Depreciason 12 wat 12 Prof afore anes 6 45 ss ‘Compute the ftiowing ratios required in para 24 the Annexure tothe Cost Aut Report forthe Sear 10 apd 20080 (@) Profit aes percentage of Capita employed. (i) Profit ua percentage of Sales (LEW Final Dee 2008) saiion (@).Compaiaton of Cail Employed stk) Paras Sisqo1o 343009 3132008, Geers ict of capt wr) nas Rs LSS ese Intangible asets (ree mars) Net Hoek) 0 40 ‘Cumulative deprecation 3038 aera Adjusted Net aa Assets 9068 38 ventory uss vs Sundey dears tom 6 ‘ans apd advances ws 19 the current assets _% = ‘Grons Curent ASS Biss ieTe Cael eg Tem ons win 2 Noth acemed 2 Cu abies 100 2 % Proviso fr expen ° i Ate Net Crrnt sts © Be ne ibe Contutimpines 0) tases Aree Capa posed 3132010 = (2408+ 1965/2 = Ra t1392 the 3132008 = (nese 9382 = Re tna 2 ompuatin or a) Pariculrs ~ 3132008 Profit blr tax = a Ade ntrest Lass Petit id Ratios (© Profit tof Capital employed (4) naw 9266 NetSaes (assumed obenetofreturs and BD) 112 9a aoa lt) Profit 6 of Salen 215mg angi Problem 5:25 alt are pofslnaly managed comumer durable mansfctre seeing edi em ‘Grote fned wnt aco 3300 200 Accumulated depecaton (040) «1300, Recarales 0 oD Trade eredons 7m 60) Tar and other peovisons (00) a0) Necasits employed 120 9 Plnanced by uty cpt Longo ane ‘reriraft and shore ceshares tty: Comouaton and Compaten st Ran 78 ‘Seiesincome Profit before interest anda Dries i300 10 ao 10 » “The company fly pui-wp guy shreshavng ace valeof Rs: 1pershare are quoted at Sper Taine dock haket Is known thatthe pln ieetionof th company aces around Om ‘fascapsiy and there areadaquteecnicaland marketing tls in hecompan shane auch her volume of bans Making such ther stunting, as you consider necesry, prepare a bre note on key indiatrs [ving beringon company anc poon a rca iui states Pom pospectve [Eider ew pst ov ac a a ssportry mecingseheled wth he company (Cs Flume 2005) Working Notes Caution of Capital Employed Parca a Gros ed ame Less Accumulate Dereon Net Pie Asst ‘Trading Investments Coffea + Rocelbles Les: Curent abies’ {Trade creditors provisions and overheads) capil payed aleiton of Raton 78 (0) Retr on Capit Employed Sapa eee * eo 1= (Sales Maria EBT 190 2 x 100 1550 sae 00 (© Suet Cpt Empl Ss 100 eral Epp 0 (4) abt uty rio Langa Det “0 Sharcholders Ea = kts) so © o (gl! 1970 oe B® HOHE 90 0 ry74 ar on: Pca ean anagenet () Carre Rao ae a ee aria we we BO (o oat ts aoe a Sines im wan otreer eee (tere Tree oe MO ays OD gay — os = sm ae coe =e os ao ae et 2 me 100 = 667 Market vale of Eu “1 gqX 100 = 887% ms oo mewtcotar ‘Shareholders Funds 10° assy 555% 100 = 206 a 13 Fenn tl ented rose fe 1022 Phan man ecdion (© Tharp cal ce R70 Rs, 350 al ta renin (6) Thelong-term debt components dbl nae year andthe debt-equty ato shows sharp increas from 040 (6078 The eal debt equity rato? 1-Thecurent deb pation thin the manageable level wt et inca Fok (@) The working capa postion and short-term Ngidy postion ave inpoved ding the at {insesl yest 200-10 (©) The Inventory tamover and eeceiabes turnover shows exces investment i stock snd rectal over the egurement of erased aes. (0) Theinterest servic coveragerato has allen rom 47 tines to20imesandthedivend cover Ins shown deci rom 335 ames to 267 tne, (@ The return on equity has fallen from 208 to 14559, However, the dvend led reraine trchanged ‘The overall financial postions deteriorating apd the Financing of working cpt inet warranted as er present nancial pontonankes tst a dente growth inl atedhares fi Any: Cnpuaston nd amparion ais 78 roblem 5:26 Sei ne shtacn enn of A tere oa 8 homme Statement forthe year ended st Mare, 2010 a0 Sale 190 {es Cnt of pods 1310 Geo maria 0 {an selng nd dines exenss ° err = ese tert epeses ‘3 Ennings ore as 88 ese 2 Naprott — en aanceShecton 16 MATER 2010 as. 00) iia ~ Pads captal 40000 city shares of Rs 10 cach flap) ao Retained earings m0 Debecuee 7 Crots 0 ‘as pesble 2 Other current bes wo i500 Net ied acts ‘00 Inventor % Datos ts Novia seuies cab So Fre poser Ra 15 Indo’ average rao ae Canon rato 2a Deb egy a m ‘uick rato 13) Tinerinerest cnr 5 Sale every gotins — Neepotmersin, ™ seen pied Sédays_—_ Prieto ening to Debra “on Returns sets us aoe above fact and igre, you at equed to») Cala the elevat rato and Interest Fr a eras Hse om th rats a Company Ser, PoP ea af yur oud oe Dressy winging ol ieee SPL Leica problem areas sod ging seston to sive thm ici imer Dee 200076 panne: nce Fiennes cece Cash 2 Bills payable o Other current liabilities ” (0) Curent Ratio Current labiliies (2) Quick Ratio a _— aren bs (3) Sales to Inventory ss inves (8) Average Collection Period = Debtors _ Ie da (8) Debts to Assets = te on (©) Debezoay Rann = ‘Shareholders funds ~ 520 ea ©) Testers Eames = EBT ___ 80 interest charges eS = (8) Net Profit Ma Netprofit, ee rin x10 = ete oa Sales 1609100 % (9) Price to Earnings Ratio = Pte per-share ea EPS ios ae (1) RerentoToal Anes = SEP yy 1 yp an 5 ae: 15062009 Pe Manns Distr, A Lie Now Dh Der,chapter tsps: Computation ad comosion Rt 77 merpttation of AG. Ld aioe od ary average tos nd sggesons fr improvement Toepsiaton sox rat wh inary serge eats {Dy Garent Rao «24 —=25Slhy higher dante dustry verge apd Shite, canbe further improved ker by Ftvingmorecurenasstsar by Felucngcurent ete Quick Ratio 15 107 Ibs much lower than ehe industry average: I Inte: unde re lacked up terres Tilt ‘Mest ia reduce the hventory levels abd ‘at the feehmguar of IT 'and supply chan ) Saestotovenry 4 hints very poor pefrmanc in sales tines live arlene menagemest of lveon Innrose he eeseney a maresing uncon an HiRes Tanti sd educe he levee eck (9) Average Colecton 35nd eral oct oly and more Perio (da) Fumie ate lacked debtors olaees I ‘ices svetacs the crs paid sndimprove th colecion of debts (6) Debustoawes ——«40%—=««H8TH Companys aszets are moe fanced wih bt ‘ends compared wah ng aera Sugstedioradusethertotopemoresontol {obs fund bles (6 Detutguty Rao 24-—«A.3SA_—Thettotefctry. The companyilessgered Tndinoretelvng on ity nde as compared to Tomes oterest Earned 686 ‘Wiles hansen average Bast ° TE SEEoe ter be provides (9) Nevreot Margin TR 77% Tees gher han the industry average It erie impeoved by wmresing sles sn ‘ling tn operting ons ana inns charges. (©) Prcetoarings Rao 15 48H _—_‘indcatsthecompanyssharesare undervalued tithe market may be due to lack of poor [Bfornatontoinvstrraboutthecompanyper tomes The sorpany may funch pubic ‘Seefalpncolnfors te pu abot compas rome (G0) RetumtoTotsl Asses 118-828 Hincates under tization of company’ sets Tssuagested oreduce anand sets end sets ‘ihchtdoes pot cen The management should Totetht each rapes invested us ear pr ‘The management i suggested to take appropriate actions, keeping in view ofthe above analysis and Tessa The wom prosper and potty ofthe Sompan. ‘Thanking you ‘Yous ffl, (KRISHNA C SHA) Financial Conant78 Parone: Prcest inca Masset ‘The Balance Shes oA Lid ad BL, on 3st March 2010 are follows Parcs aa a iis ‘Share capita Reserve ad uphas Secured lone ‘Current abies nd provisions Sundry eens Outssing expenses Provsion fr aaton Propond dvdend Unclaied ddend Inventory cost Sundeydcbors (Cosh and tok Adon informain avaiable (75% the Inventory in 8 Liar edi saleable t cost plus 208, @) Sof Sundry debiors of B Lid. areduefrom€ Lud whichis nota poston orepey the amount, Bid agreed toaccop 194 Debentures of Cid, (i) 4d alo proposed 18 aiden but that was not shown in the scouts. Gx) Atthe year end B Lid old imestments among to Re. 120000 andrea Suny credon, {a the basis ofthe stven Balance sheets and the adtonlinfrmatin, you ae requined Soran ‘helio he companies Al workings shal orm ptf te sraer {CA Paton ss) Satan (0) Computation of Current Rao and Quik Ratio es) (a Seseeeareeeea seem Las Inventory Bono 4509000 ‘Sundry detoes eas Propose invesiment in debentures ‘330.000 (Cash and bank 70000 550000 Current Anes ix7oon 5900000 Les Inventory other than edly ssleale 575000 4509000 Add Profton rely saleable menting 485000 : Ouick Ante 060haps fai Ans: Computer and Campane 79 ‘Curent abies and Quick Listes as Parte rte or Sundry eredtors 1400000 Outsanding expenses 500000 Provison forsauaton 000% ‘ropored dividend : Untamed dividend (Caren Libis n50%0 |Add Prope! dividend ‘00000 Sundry creditors epi a yearend 120000 es %eispw 7120000 ‘Caren Asst s.2870000 Re 5900000 ‘Caren abies 52415000 Re 2000000 S10 = 295 ice Rate hick Ase s.2640000 Re 1400000 ‘hick bis RS2615000 Re 2720000 101 ast ‘The curent eto of B Li ult satfactry andi beter as compared oA Ld But the quick ratio ‘of Lid alarming 1 only OSt az compe fo 8 Lid ay be To holding nrc amount of Cakeuation of Compostion of Current sets aa a Be i ¥ Siok 200000013 4500000 Kos Sundry debors 1790000 2519 achat bank oo 1987 $5000 BIS 3a7o00 1006730000 100 However AL's tock was edi neable es necesary to excode the edly sleble tock ond take the prftintoaccount before sucheompaaon Aloitrneceeary provi bad dst {ebtrs of Lid Adjated caren sete poson tose organs allows Parteals a a co ventory s7so00 1788 45000007627 Sundry dsbors rayon 6439 “S000 AT aa snd bane smo 1773 _ss0000 932 Hzisoq0 1003500000100 ‘Now tgpears that B Lid held ch higher sok than A Lid whi as been reflected nie Aid est ‘aun Meteor, curen lb of Bd suwn i the Balas sheet wert not eflceng tht proponddvdend That aac yea ndrepayment of randy eel ysl investments by Bi {Dimpove iui ration shouldbe adja fo diate average Mg eater mntaaed Oy the ‘ompany urge year