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| SESSION | march 2025 |
| PROGRAM | BACHELOR OF Commerce (B.Com) |
| SEMESTER | III |
| course CODE & NAME | DCM2105 Financial statement interpretation |
Assignment Set – 1
Q1. a. Discuss the significance of financial statement analysis. Mention types of financial statements Analysis are there?
- Prepare Income Statement for Year ended 31st Dec 2023 from the below information as per schedule III of companies Act 2013.
Gross Revenue Rs 1,000,000
Purchase of Raw material Rs 5,60,000
Opening Raw material Rs 2,00,000
Closing of raw material Rs 60,000
Depreciation Rs 25,000
Selling expenses Rs 5,000
Retirement benefit expense Rs 50,000
Salary expense Rs 70,000
Office equipment (life less than 1 year) Rs 50,000
Interest expense Rs 7,000
Tax Expenses Rs 45000
Extra ordinary Expenses Rs 60,000
Ans 1.
Significance of Financial Statement Analysis
Financial statement analysis is a systematic process of examining a company’s financial data to evaluate its performance, profitability, and financial health. The analysis helps various stakeholders such as investors, creditors, management, and regulators make informed decisions.
Importance:
- Assesses Profitability – Understands how efficiently a company generates profits.
- Measures Financial
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Q2. From Income Statement for the Year Ended December 31,2023 (in Rs.). Determine Cash from operating activity.
Revenue Expenses
Sales Rs. 5,00,000 Cost of Goods Sold Rs. 2,00,000
Other Revenues Rs. 50,000 Operating Expenses Rs. 1,00,000
Interest Expense Rs. 10,000
Tax Expense Rs. 20,000
Net Income Rs. 2,20,000
Additional Information:
Depreciation Expense: Rs. 30,000
Changes in Working Capital:
Increase in Accounts Receivable: Rs. 10,000
Decrease in Inventory: (Rs. 5,000)
Increase in Accounts Payable: Rs. 8,000
Increase in Accrued Expenses: Rs. 3,000
Ans 2.
Determine Cash from Operating Activities (Indirect Method)
Step 1: Start with Net Income
Step 2: Add Non-Cash Expenses
- Depreciation Expense = ₹30,000
Q3a. Prepare a schedule for changes in the working capital from the Balance sheet data given below:
| Dec 2023 (Rs.) | Dec 2024 (Rs.) | |
| Capital & Liabilities: | ||
| Share Capital | 6,00,000 | 7,50,000 |
| Trade creditors | 2,12,000 | 1,40,000 |
| Profit & Loss A/c | 28,000 | 62,000 |
| 8,40,000 | 9,52,000 | |
| Assets: | ||
| Machinery | 140,000 | 2,00,000 |
| Stock-in-trade | 2,42,000 | 2,72,000 |
| Debtors | 3,62,000 | 3,40,000 |
| Cash | 96,000 | 1,40,000 |
| Total | 8,40,000 | 9,52,000 |
- (B)
Current ratio = 2.8:1
Acid-Test ratio = 1.5 :1
Working capital = Rs.162000
Find out:
- Current assets
- Current Liabilities
- Liquid assets
Ans 3.
(a) – Schedule of Changes in Working Capital
Working Capital = Current Assets – Current Liabilities We consider only current assets and current liabilities for
Assignment Set – 2
Q4. a. Perform a trend analysis for ABC co. over a five-year period (2018-2022) for sales, expenses, and net income to understand the relationships between these components.
Year Sales Expenses Net Income
2018 Rs. 800,000 Rs. 600,000 Rs. 200,000
2019 Rs. 850,000 Rs. 620,000 Rs. 230,000
2020 Rs. 780,000 Rs. 640,000 Rs. 140,000
2021 Rs. 920,000 Rs. 700,000 Rs. 220,000
2022 Rs. 950,000 Rs. 720,000 Rs. 230,000
From the following particulars, you are required to calculate.
Earnings per share
Price – Earnings Ratio.
Return on capital employed.
Particulars Amount Particulars Amount
Equity shares capital (Rs 10) ₹ 2,00,000 Reserve & surplus ₹ 50,000
Building ₹ 2,50,000 Plant and Machinery ₹ 1,50,000
10% Debenture ₹ 1,50,000 12% loan ₹ 50,000
Inventory ₹ 50,000 Cash in hand ₹ 30,000
Debtors ₹ 40,000 Creditors ₹ 60,000
B/R ₹ 10,000 B/P ₹ 40,000
Advance Tax ₹ 4,000 Bank Overdraft ₹ 4,000
Other Information:
Net profit before Interest and Tax: Rs 2,50,000
Tax Rate = 40%
The current market price of Share is Rs 50
Ans 4.
- Trend Analysis (2018–2022)
In trend analysis, we express each year’s figure as a percentage of the base year (2018 = 100%).
| Year | Sales (₹) | Sales Index | Expenses (₹) | Expenses Index | Net Income (₹) | Net Income Index |
| 2018 | 800,000 | 100.0 | 600,000 | 100.0 | 200,000 | 100.0 |
| 2019 | 850,000 | 106.25 | 620,000 | 103.33 | 230,000 | 115.0 |
Q5. a. Propose a framework to detect and minimize Earnings Management in organizations.
- Compare and contrast qualitative and quantitative methods of Financial Forecasting.
Ans 5.
- Framework to Detect and Minimize Earnings Management in Organizations
Understanding Earnings Management
Earnings management refers to the deliberate manipulation of financial statements by management to achieve desired financial results, often to meet targets or influence stock prices. While it may not always involve outright fraud, it distorts the true financial health of an organization
Q6. From the following Balance sheet of a SGRCS ltd for the year 2024 and 2025. Prepare a comparative Balance sheet and comment on the financial position of the concern:
| Liabilities | 2024 | 2025 | Assets | 2024 | 2025 |
| Equity Share capital | 6,00,000 | 8,00,000 | Land & Buildings | 3,70,000 | 2,70,000 |
| Reserves & Surplus | 3,30,000 | 2,22,000 | Plant & machinery | 4,00,000 | 6,00,000 |
| Debentures | 2,00,000 | 3,00,000 | Furniture & Fixtures | 20,000 | 25,000 |
| Long-term loans on mortgage | 1,50,000 | 2,00,000 | Other fixed assets | 25,000 | 30,000 |
| Bills payable | 50,000 | 45,000 | Cash in hand and bank | 20,000 | 80,000 |
| Sundry creditors | 1,00,000 | 1,20,000 | Bills receivable | 1,50,000 | 90,000 |
| Other current Liabilities | 5,000 | 10,000 | Sundry Debtors | 2,00,000 | 2,50,000 |
| Stock | 2,50,000 | 3,50,000 | |||
| Prepaid Expenses | 2,000 | ||||
| Total | 14,35,000 | 16,97,000 | Total | 14,35,000 | 16,97,000 |
Ans 6.
Comparative Balance Sheet of SGRCS Ltd. for 2024 and 2025 (All amounts in ₹)
Liabilities Side
| Particulars | 2024 | 2025 | Increase / (Decrease) | % Change |
| Equity Share Capital | 6,00,000 | 8,00,000 | 2,00,000 | 33.33% |
| Reserves & Surplus | 3,30,000 | 2,22,000 | (1,08,000) | (32.73%) |
| Debentures | 2,00,000 | 3,00,000 | 1,00,000 | 50.00% |
| Long-term Loans | 1,50,000 | 2,00,000 | 50,000 | 33.33% |