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SESSION March 2024
course CODE & NAME DCM2105– Financial statement interpretation



Assignment Set – 1st



  1. Discuss the significance of financial statement analysis. Mention different types of tools and techniques available for financial statements Analysis?

Ans: The significance of financial statement analysis can be understood in various contexts: 

Performance Evaluation:  Financial statement analysis helps assess how well a company has performed over a specific period. It involves examining the income statement to analyse revenue, expenses, and profitability ratios, allowing stakeholders to gauge the company’s operational efficiency and effectiveness.

Decision-Making for Investors:  Investors use financial statement analysis to make informed investment decisions


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  1. Prepare Income Statement for Year ended 31st Dec 2023 from the below information as per schedule III of companies Act 2013.
Revenue from operation                               Rs 8,00,000

Purchase of Raw material                             Rs 3,60,000

Opening Raw material                                   Rs 2,00,000

Closing of raw material                                 Rs 60,000

Interest Income                                              Rs 30,000

Depreciation                                                   Rs 25,000                  

Selling expenses                                              Rs 4,000        

Retirement benefit expense                           Rs 50,000      

Salary expense                                                Rs 60,000      

Office equipment (life less than 1 year)       Rs 4,000        

Interest expense                                              Rs 7,000

Tax Expenses                                                  Rs 6000

Extra ordinary Expenses                               Rs 20,000


To prepare the Income Statement for the year ended 31st December 2023 as per Schedule III of the Companies Act, 2013, we’ll follow the format prescribed.

Here’s the detailed income statement: 



  1. From Income Statement for the Year Ended December 31, 2023(in Rs.). Determine Cash from operating activity.
Revenue                                                                         Expenses   

Sales                            Rs. 10, 00,000             Cost of Goods Sold                Rs. 200,000

Other Revenues         Rs. 50,000                   Operating Expenses               Rs. 100,000

Interest Expense        Rs. 10,000

Tax Expense  Rs. 20,000

Net Income     Rs. 220,000



Additional Information:

  1. Depreciation Expense: Rs. 50,000
  2. Changes in Working Capital:
  • Increase in Accounts Receivable: Rs. 20,000
  • Decrease in Inventory: (Rs. 10,000)
  • Increase in Accounts Payable: Rs. 16,000
  • Increase in Accrued Expenses: Rs. 13,000


To determine the Cash from Operating Activities, we will start with the net income and adjust for non-cash items (such as depreciation) and changes in working capital.

Here is the detailed calculation: 

Cash Flow from Operating Activities Net Income:  Rs. 220,000

Adjustments for Non-Cash Items: 

Depreciation Expense: Rs. 50,000

Changes in


  1. Prepare a schedule for changes in the working capital from the Balance sheet data given below:
  Dec 2022 (Rs.) Dec 2023(Rs.)
Capital & Liabilities:    
Share Capital 16,00,000 17,50,000
Trade creditors 12,12,000 11,40,000
Profit & Loss A/c 1,28,000 1,62,000
  29,40,000 30,52,000
Machinery 1140,000 12,00,000
Stock-in-trade 12,42,000 12,72,000
Debtors 3,62,000 3,40,000
Cash 1,96,000 2,42,000
Total 29,40,000 30,52,000

Ans: To prepare a schedule for changes in working capital, we need to focus on the current assets and current liabilities.

Here’s how we will calculate the changes in working capital from the given data: 

Working Capital Calculation:

Current Assets:  Stock-in-trade Debtors

Cash Current Liabilities: 

Trade creditors Working



Assignment Set – 2nd



4 a. (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.





Rs. 800,000


Rs. 600,000

Net Income

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

Ans: (A) Trend Analysis for ABC Co. (2018-2022)

Let’s calculate the trend percentages for Sales, Expenses, and Net Income using 2018 as the base year (index =



  1. ₹ 12,00,000 is the cost of revenue from operations, inventory turnover is 7.5 times, stock at the beginning is 1.5 times of the stock at the end. Calculate the value of opening and closing stock.


Calculation of Opening and Closing Stock Given: 

Cost of revenue from operations: ₹ 12, 00,000

Inventory turnover ratio: 7.5 times

Opening stock = 1.5 × Closing stock

Formula for Inventory Turnover Ratio:

Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory

Average Inventory Turnover Ratio= Opening Stock + Closing Stock​/2

Let’s denote:


5a. What do you mean by Earning Management? State different techniques of Earnings Management.


Ans: Earnings management refers to the practice of using accounting techniques and judgment to manipulate financial reports to achieve certain desired outcomes. These outcomes may include meeting or exceeding financial analysts’ forecasts, influencing the stock price, meeting internal targets, or complying with loan covenants. Earnings management can involve legitimate accounting choices, but it often crosses the line into unethical or even fraudulent behaviour.

Here are several


  1. What things to be kept in mind while making Financial Forecasting .Explain different methods used for Financial Forecasting?

Ans: Financial forecasting is a crucial activity for businesses to predict future financial performance and guide strategic decisions.

Here are several key considerations to keep in mind while making financial forecasts: 

Key Considerations for Financial Forecasting: Clear Objectives: 

Define Goals: Clearly


  1. From the following Balance sheet of a SGRCS ltd for the year 2023 and 2024. Prepare a comparative Balance sheet and comment on the financial position of the concern:
Liabilities 2023 2024 Assets 2023 2024
Equity Share capital 3,00,000 4,00,000 Land & Buildings 1,850,000 1,35,000
Reserves & Surplus 1,65,000 1,11,000 Plant & machinery 4,00,000 3,00,000
Debentures 1,00,000 1,50,000 Furniture & Fixtures 20,000 12,500
Long-term loans on mortgage 75,000 1,00,000 Other fixed assets 25,000 15,000
Bills payable 25,000 22,500 Cash in hand and bank 20,000 40,000
Sundry creditors 50,000 60,000 Bills receivable 1,50,000 45,000
Other current Liabilities 2,500 5,000 Sundry Debtors 2,00,000 1,25,000
      Stock 2,50,000 1,750,000
      Prepaid Expenses   1,000
Total 7,17,500 8,48,500 Total 7,17,500 8,48,500

Ans: Comparative Balance Sheet of SGRCS Ltd. for the Years 2023 and 2024 Liabilities and Assets Comparison