Addendum A.

55

PROJECT WORK

{ Project Illustration t I
Prepare Common-size Balance Sheet and Statement of Comparative Ratios to asse55 the iinanc:ial soundness
of each company• Common-size Balance Sheet shows the changes and trend of each individual item of
Balance Sheet (i.e., Assets. Equity and Liabilities). On other hand Comparative Ratios show Liquidity,
profitability, activity or tum.over and financial position from the data of two companies drawn from their
~ starements. And also give your obsen·ations/comments as to which of the two companies is
~ when rompared on the basis of liquidity, profitability, activity or turnover and financial p.osition.

Project Solution
Abou_t the Project
The project is to show the changes and trend of each individual item of Balance Sheet (i.e., Assets, Equity
a.~ liabilities) and also to compute the accounting ratios showing the liquidity, profitability, activity
or m.mDver and financial position of the two companies J\ai_-nely, Lotus Tea Ltd. and English Tea Ltd.
The project also requires to give observations/ comments comparing the two companies on the basis of
lii;p kfity, profitability, activity or turnover and financial position.

Information or Data for the Project

Botii t.."ie companies namely Lotus Tea Ltd. and English Tea Lui are in similar business operating under
~Jiar business anironment and also of similar size. Since, both the companies are comparable, they
lu--\•e been selected.
The -da.ta is taken from their published annual financial statements drawn from their websites, i.e.,
~r.i,w~ll.!:Dm and i;.TJJ.r:,., ..engfu:Jilu.com. 1he data is for the financial year ended on 31st March, 2022
and is as rolliw:s:
~tOU!irs I lo!usTeJ Ud. (t) 1
EngllshTea lld.ro
~ Im."!) Operations ~Net Sales) 25,60,000 24,00,000
Ntit Pmftt ~..er Tax i 9!3,400 I
'l.25,400
~ Share(apit;,J lSubscl'lbed and fully paickJp, shares of~ 110 each) 8,00,000
'
6,,4().000
I
P-'&'rvfs anal SorpJus 1,85,600 S,13,600
~~~ '
6,40,000 I S.2B.000
I

T~~.bles I 3,05,600 4,39,300

I

f>'zot~for Tate 40,000 ~

~~ ~,000 1,&1,000
f'~ ¼ets (Tangible~ 12,79,200 12,72,DaO
!
~~
~~~1!5
~~
,~lfS!f))

I
40i000
2,64.BOO
J.25.llS
I
ti
..a.100
6.47,lOO
2.97,.UO

I
I

~ usn ~w-~ 1,£>9,.915 63,1~3

A.56 Double Entry Book Keeplng--cBSE XII

Planning and Execution

The p roie'ct i,s planned and executed as f.oltows:
1. Cammo.n--siz.e Bal~ce Sheet is prepared to assess the relative financial soundnesis of the tw<,

com panies.
2. Liquidity Ratios, i.e.. Current Ratio and Quick (Liquid or Acid Test) Ratio are computed, whidl w-1U
give insight into their ability to meet their short-term financial commitments in ti.me~

3• .Profitability Ratios, i.e,., Net Profit Ratio, Return on Total Assets Ratio and Re:tum on Capi,t al
Employed Ratio are computed, which wiU giv,e insight as to whether resources have been able
to gene.rate profit.
4. Turnover Ratios, i.e~, lnventot"y Turnover Ratio, Fix·e d Assets Turnover Ratio, Current Assets
Turnover Ratio and Total Assets Turnover Ratio are computed, which will show how efficiently the
resources have been used.
5. Ratios for financial position, Le., Debt to Equi ty Ratio, Fixed Assets to Debt Ratio and Proprietary
Ratio are computed, its comparison will show which of the two companies is in better financial health.

6. The accounting ratios so computed are plotted in a mam,er that comparison is easily made.
7. The accounting ratios of the two companies are analysed and accordingly commented upon.

Analytical Tool Used

AnaJytical tools used in the project are:. (a) Common-size Balance Sheet; and. (b) Accounting Ratios.

Analysis and Condusion

Before Common-size Balance Sheet is prepared, Balance Sheet is prepared to ensure that assets and
liabilities m.1tch. Balance Sheets oi the two companies are as follows:

BALANCE SHEET
as at 31st March, 2022
Partkuw's
1
NoteI Lotus i English
No. Tea Ltd. ro [Tea Ltd.(f)
L EQUn'Y ANO LIABILITIES
1. Shareholders' Funds
(a} Share CapltaJ 8,00.000 6,40,000
(b) Reserves and Surpllil:S 1,85,600 s,13,600
2. Non-Current Li.lbilities
Long•tem:l Bcxrowings (6% Debentut~) 6,40,000 •' 5.28,000
3. Cunent Liabilities
<a-) Short-term Borrowings {Bank Ovefdraft) 48.000 ( 1,60,000
(b) Trade Payables 3.os,600 ; 4,39,300
(c} Short-term Provision (Provision for Ta)()
I 40~000 I 48,000
Total ~ 20,19,200 23,2~
 Addendum A.57

n. ASSETS
1• Non--Current Assets
Property, Plont ond Equlpmen t ond Intangible Assets:
(I) Property, Plant and Equipment 12,79,200 12,72,000
CTI) Intangible Assets 40,000 48,100
2. current Assets
(a) Inventories 2,64,800 6,47,200
(b) Trade Receivables 3,25,285 2,97,830
(c) Cash and Cash Equivalents 1,09,915 63,770
Total 20,19,200 23,28,900

Solution: COMMON-SIZE BALANCE SHEET

as at 31st Morch, 2022

Particulars Note Absolute Amounts Percentage of

No. Balance Sheet Total

Lotus English Lotus English

Tea Ltd. ~) Tea Ltd. ~) Tea Ltd. (%) Tea Ltd. (%)

t. EQUITY AND LIABILITIES

1. Sh•reholders' Funds
(a) Share Capital 8,00,000 6,40,000 39.62 27.48
(b} Reserves and Surplus 1,85,600 5,13,600 9.19 22.05
2. Non-Current U.bilities
Long-term Borrowings (6% Debentures) 6,40,000 5,28,000 31.70 22.67
3. Current LI•bllities
(a) Short-term Borrowings (Bank Overdraft) 48,000 1,60,000 2.38 6.87
(b) Trade Payables 3,05,600 4,39,300 15.13 18.87
,
(c) Short-term Provisions (Provision for Tax) 40,000 48,000 1.98 2.06
Tout 20,1 9,200 23,28,900 100.00 100.00

II. ASSETS
1. Non-Current Assets
Property, Plant and Equipment and
Intangible Assets:
(I) Property, Plant and Equipment 12,79,200 12,72,000 6335 54.62
(ii) Intangible Assets 40,000 48,100 1.99 2.06
2• Current Assets
(a) Inventories 2,64,800 6,47,200 13.11 27.79
(b) Trade Receivables 3,25,285 2,97,830 16.11 12.79
(cl Cash and Cash Equivalents 1,09,915 63,770 5.44 2.74
Tout 20,19,200 23,28,900 100.00 100.00
,- ~
-·"~------ · - ----------------
A.58 DGuble Ei"try Sook Keeplr,g-CBSE XII
COMPUTAnON OF ACCOUNTING RATIOS ANO STATEMENT OFCOMPAR~TIVE RATIOS

A. UquWity . . .
Ac~ --- Lotw TH Ltd, Elffllth Tu lbl.
-- --
~·~ CfJl'ftmt R4tk>:
Curten.t Assets I t 7,00,000 .= 1.. 78 : l t 10, 08, 800 ::a 1.S~ ~ 1
c,meAt UabiUtle5 l
t 3,93,600 -t' 6,47,300
•
(lij O.,ick ,Wio; I
- -
Qulck Assets ~ 4,35,200
= 1.11: ]
t 3,61 ,600 0 056 : l
Current Ulbilities I
\' 3,93,600 f 6,47,300

I. PtofitaWky Rados '

(,i) ~.t PK>flt Ratio:

Net P,r ofit(after Tax~ 98 26
x 100 ' •400 X 100 : 3.84% f l, •400 x l 00 = 5.27%
Revenue from-Operations, i.e., Net Sa~ \' 2S, 60,000 f 24,00,000
(ii) Rtitum oo T°"11l Autts: I

Net,~ (after Tax~ x ?98,400 f 1,26,400 x 100 = 5A3'6

100 X 100=4.87%
Total Assets ,20,19,200 ,23,28,900
:

{ii) Rttum on~ I Employed:

P.r ofit before &Aterest and Tax f t76,80() X 100 =1 0.88% f 2, 06, 080 x l 00 = 12.25CJib
X 100
Capbl Employed f 16, 25.,600 f 16,81,600
C. AdMty or Turnowt Ratios
O
i Invemo,y Tumowr.WO:
Revenue from Operations (Net sates) ·I '25,60,000 = 9.67 Times f 24.,00,000 = l .11 Times
Inventories ti,64,,800 I t6,47~200 •

00 Rxed.Assets TumowrRatio:
ReYfflue from Operations {Net Sales) t 25,60,000 = ,_94 nmes
f13,19,200
I 2◄,00,000 ;;
f
fU,20,100
l .82 Times
Fixed Assets
(ii) Cuf'lfflt AsSffl ftffl,')(WN Rtltlo:
t 24,00,000 _
ReYenuetrom Operations (Net Sales)
Current A5SetS '7
'25,60,000 = 3.66 TI .
•
00,000 mes , flO 08, 800 -2..38 Times
1
I

CM T«<tl A$s«.s Tumowr kb: i

Reverlue·from Operadons (Net S~) t lS,,60,000 -1 .27 Times f24,00,000 =l.03 nmes
r' Totat As5ets t 20..19,200 tll, 284900
o. FlnancWRados
(it Dtot to Equity Rado;
long-temi Debts
f 6''40.000 = 0.65 : 1 ,s.28,000
=0A6 : 1
l Equlty/Sha.r ~ r s• Funds t9, 85,600 f 11,53, 600
(ii) F/MdAs,sfts lo OtotRado:
Fixed Assets
l
~13. 19,200 _ TI t n. 2O.100
Debt or t.ong-tem1 Funds t 16 25 600 - 081
• mes t
16,81,.600
= 0.79 nmes.
l. I l

(iii) Prc,prletoly Ratio:

Proprietor's Funds ?9,8S,600 =o..4
9
r1 ts3, 600 = 0.50
Tataf .A$sets t 20. 19,200 f 23. 28.900
 Adde ndum A.59

comments
l the following:
1. Comm on-siz e Balance Sheet s of the two comp anies revea
(t 9,85,600), highe r Long •term Borro wings
(a) Lotus Tea Ltd. has lower base of Share holde rs' Fund s
(t 6,40,000) and lo~er ShorM enn Borro wings Ct 48,000
) as comp ared to English Tea Ltd., which
wings (' 5,28,000) and Short -term
has Share holde rs Fund s (' 11,53,600), Long -term Borro
Borro wings (f 1,60,000).
(b) Engli sh Tea Ltd. has highe r Trade Payab les (f 4,39,3
00) as comp ared to Trade Payables (f 3,05,600)
nt of total liabilities, it is 18.87% for
of Lotus Tea Ltd. A comp arison of Trade Payab les in perce
Engli sh Tea Ltd. depen ds more on
Engli sh Tea Ltd. and 15.13% for Lotus Tea Ltd. It mean s that
outsid e funds than Lotus Tea Ltd.
gible Asset s (fixed assets ) is about the
(c) Inves tment in Prope rty, Plant and Equip ment and Intan
Ltd. is better place d. Its inves tment
same amou nt but when consi dered in perce nt, English Tea
Ltd. it is 65.34%. It mean s Engli sh
being 56.68 % of total assets wher eas in the case of Lotus Tea
Tea Ltd. is utilis ing the fixed assets better.
Ltd. in Inven tory. It is, 2,64,800 (13.11 %
(d) English Tea Ltd. has inves ted much more than Lotus Tea
f 6,47,200 (27.79% of total assets ) in
of total assets ) in the case of Lotus Tea Ltd. where as it is
by Lotus Tea Ltd. is more judic ious
case of Engli sh Tea Ltd. It seem s inves tment in inven tories
as comp ared to Engli sh Tea. Ltd. I
I
is more efficient in recov ering the due
(e) When Trade Recei vable s are comp ared, English Tea Ltd. j
of absol ute amou nt (f 2,97,830) and
amou nts as it has lower Trade Receivables both in terms
Tea Ltd. havin g Trade Recei vable s
perce nt terms (12.79% of total assets ) as comp ared to Lotus
as absol ute amou nt~ 3,25,285) and perce nt terms (16.11).
Liquidity Posi tion
1. Norms for Curre nt Ratio varie s on the basis of
natur e of the busin ess. Howe ver, gener ally accep ted
Tea Ltd. has Curre nt Ratio of 1.78 : 1;
Curre nt Ratio is 2 : 1. Again st the accep ted ratio of 2 : 1, Lotus
, the Curre nt Ratio s of the two comp anies
where as Engli sh Tea Ltd. has Curre nt Ratio of 1.56 : 1. Since
is not mater ially differ ent from each other. But when
comp ared to accep ted ratio, Curre nt Ratio of
Lotus Tea Ltd. is close r to 2 : 1. Thus, Lotus Tea Ltd.
can be said to be in better positi on to meet its
current liabili ties on time as comp ared to Engli sh Tea Ltd.
ted norm of 1 : 1, Lotus Tea Ltd. has a
2. Accepted norm for Quick Ratio is 1 : 1. Again st the accep
Ratio of 056 : 1. Thus, it can be deriv ed
Quick Ratio of 1.11 : 1; wher eas Engli sh Tea Ltd. has a Quick
ties at a short notice.
that Lotus Tea Ltd. is better place d to meet its curre nt liabili
sh Tea Ltd. as far as Liqui dity positi on
Thus, Lotus Tea Ltd. is bette r positi oned as comp ared to Engli
is conce rned.
Profitability Posi tion
Lotus Tea Ltd. It sh?w s that Engli sh Tea Ltd.
~rofitability Ratios of Engli sh Tea Ltd. are better than that of
lS making better utilis ation of availa ble resou
rces than Lotus Tea Ltd. Presu ming that bette r Net Profit
Tea Ltd. is either maki ng more econo mical
Ratio is a result of bette r Gross Profi t Ratio, it mean s Engli sh
realis ation, i.e., Reve nue from Oper ation s.
~rcha ses or its produ cts are better price d result ing in better
11 ts also possib le that it is a result of both the factors.

Activity Ratios
s Turno ver Ratio, Curre nt
The analysis of all the Activity Ratios, be it Inven tory Turno ver Ratio, FixedofAsset
Lotus Tea Ltd. are better than
Assets Turnover Ratio or Total Asset s Turno ver Ratio, show s that ratios
utilisi ng the availa ble resou rces to achie ve
that of English Tea Ltd. It show s that Lotus Tea Ltd. is better
sa.les. But it is earni ng lower profit as comp ared to Engli sh
Tea Ltd.

Financial Posi tion

on of both the comp anies is not much
1:ie analysis of Finan cial Ratio s show s that the financ ial positi
differe nt The ratios indic ate that both the comp anies are
equal ly place d.