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| SESSION | March 2024 |
| PROGRAM | BACHELOR OF Commerce |
| SEMESTER | III |
| course CODE & NAME | DCM2105– Financial statement interpretation |
| CREDITS | 4 |
Assignment Set – 1st
Questions
- 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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- 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 |
Ans:
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:
Income
- 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:
- Depreciation Expense: Rs. 50,000
- 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
Ans:
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
- 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 | |
| Assets: | ||
| 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
Questions
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.
| Year
2018 |
Sales
Rs. 800,000 |
Expenses
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 =
- ₹ 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.
Ans:
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
- 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
- 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