Accounting& Financial Statement Analysis

Module-4
Financial Statement Analysis-II
Funds flow statement
1 Statement showing changes in working capital
particulars Previous year Current year Effects on working capital
Increases Decreases
Current Assets:
Stock XXX XXX
Debtors XXX XXX
Bills Receivable XXX XXX
Cash in hand XXX XXX
Cash at Bank XXX XXX
Prepaid Expenses XXX XXX
Total XXX XXX
Current liabilities
Bills payable XXX XXX
Bank overdraft XXX XXX
Creditors XXX XXX
Total Xxx XXX
Working capital (A-B) Xxx XXx
Increases / decreases in
Working capital XXX XXX

2. Adjusted profit and loss Account

Particulars Amount Particulars Amount
To depreciation XXX By operating balance (P&L XXX

balance )
To loss on sale or XXX By Profit on sale or XXX
revaluation of fixed asset revaluation of fixed Asset
To preliminary Expenses XXX By dividends received XXX
written off
To Goodwill Written off XXX By rent received XXX
To share and debentures XXX By Interested received XXX
written off
To provision for taxation XXX
To dividend paid or proposed XXX
To closing balance XXX By funds from business XXX
operation (difference)
Total XXXX Total XXXX

1. Statement of sources and application of funds

Hhva Ch V L Page 1
 3. 2 Totaltrading
Increases Purchases
NonFunds Redemption
debenturesApplication Total
of FundsofDecreases Sales
Debentures
1.
Changes 4. 3. 2. General 1. Basic Redemption
Repayment Borrowing
LoansIssueIssue
of Sources
Fundsof
trading
incomeNonFundsinstitutional
Changes Any
Changes Financing
preference
capital
dividend and through
and Investment Operating principles of of
change investment loss from
rules of
investment share
in
expenses in in
affecting
affecting will Activity: current working trading
to Activity of
investment of
working trading of
affect in be Activity: institutional Equity capital
the cash
followed asset
balances It operation and
cashprofiteither :It flow operation
capital capital
records capital
redemption
Itrecords
(expect and fixcd
will records statément
wil cash while
reflectreflect sheet fixedLoans
cash asset
orpreparing
the cash the Accounting&
between
in profit flows Asset
in of cash
cash cash and
profit debentures Statement
Flow
Cash
the through flow
flow two flows bank
and cash
statement vears through balance alof Financial
loss only l
flow operating
ppropriation given and
statement preference issue
only and )
will Statement
of
purchase current
expenses
be equity
reflected
account share
shares, liabilities and Analysis
and XXX XXX XXX XXX XXX XXX XXX Amount
in capital sales XXX XXX XXX XXX XXX XXX XXX XXX XXX Amount
debentures all
the
cash
cash and of
fixed flows
flows payment
and asset
 Particulars
To To Format
r liabilities
Less: operations Particulars
from
Cash
Operating year
debentures
preference
balancec/dTo
Total To or To ToTo To
debentures
0ssueof
Issue Cash
Investment
Purchases Cashliabilities
Payment
Activity:
Sales Add:Activity increases
depreciation
increases
goodwill
Redemption
CashProposed
ofpreference:
Redemption
shareIssues
debenturesof
CashPayment Financing
Activity: proposedpremium interim
Mosing Add: from
increases.in.current. decreases of
opening from from of of from of
equity xed of dividend profit
h balance dividend preference of fiof on written in in
income dividend provision
reserve on
L financing
all interim investmentfixed operating redemption
asset in fixed &
balance the shares current paid off loss
ofabove of
cash of
dividend share assets or Tax assets
Appropriation
Activity
ofpervious activity Activity currentshare
Accounting&
investment
or of
or
activities
cash asset Assets
bank investment
and year and.decreases and
Format XX XX XX XX XXXX XXXX XX
Amount
bank foshi increases
Financial
peg of
afe cash
mpat in in Total BY
discountBY
debentures onBy BY Particulars
Balance
ByB/By
d
current current flow cash Increases
increasesprofit Statement
nnpot)
blomece statement from on
/las?n or in on sale
operation
redemption
preference of Analysis
Goodwill
investment fixed
(XX) (XX) (XX) (XX) XXXXXX XXXX XXXX XX XX Amount
balorme assets
B/f
share

XXX XXX XXX XXX XXX XXX Amount XX XXX XX XXXXXX

Amount
XX
ge 3
 General
Reserve
Liabilities: 2020 3. off During
purchased Provision
Creditors
tforax Bank Additional LA/cP&
6,000 Total Creditors
capital
Share
Dr capital
EquiCapital
ty and 28,000. 20,000, loanProfit capital
Share FUND
FLOW
Liabilitiesprepare ANALYSIS:
Globe Reserve
General Following From Y
hya in on Liabilities
&
Rs Building
Provision
Machinery the Loss
traders
the the
Ch lakhs: for information: c
year are statement
following
VL Rs A/C
limited the
of Rs50,0002021,
Rs summarized 5,20,000 4,00,000 2019
1,06,000
10,000,
Rs 14,000 showing
33,000 25,000. 5.30,500 March Balance
has payable 1,50,000 2,00,000 2020 Depreciation
dividends 30,000 70,000
30,500
50,000 31
Particulars furnished
Machinery
Machinery
was the sheet Accounting&
in Balance
charged March
sources
shares. paid5,10,800 2,50,000 2021 6,76,000
Total
charged 5,75,000 2020 of
its 1.35,200 30,600
35,000 Stock60,000
eA 31st 70.000
31,000Stock A
Balance Rswas was sheets Problems
Practise
to Nil| andWilson
14,000.
Profit
The Rs Financial
purchased Sundry PlantLand on CashcA application and
sheets following BankcACash
GoodwillFA eA of plant DebtorsCAPlant
23,000 A.Com
and && Assets
Income debtors Building and &MachineryAssets company
Statement
as Loss Machinery
on for Assets
assets Ltd machinery of
30" account. tax Rs as funds for
CA FA on
June 8,000, were of
paid F the Analysis
another 31 FA
June30" 5.30,500 1,00,000 2,00,000
l,50,000 March during year
2019 2019 Depreciationpurchased: 80,000 2020
30200 during 315t March 5.20,000
1,43,000
1,81,000
1,21,000 2019
500 75,000
datement.
Bumds
glow ended
and company the
30" the 2020-202 year 2019-2020
year Stock 5.10,800 1,69,000
1,90,000 March
2021
Page 4 2020 June June written 74,000
64.200 31st 6,76,000 1,70,000
40250 30h were 5,0008,000 Rs: 2,70,000 1,36,000
1,00,000 2020
600
Rs Rs 1
 debs dousRltpdorne Debtors
Bank &Stock
Cash Furniture Properties
Assets: Dividends
Current
debentures
Land andliabilities 15%
Revaluation
Reserve
KPrepare Rs 2020.
lakhs. During Building
Dr 2.Following CASHFLOW Machinery
12,00,000
a Depreciation Anthe
Liabilities
capital
Share information:
Additional
3. 2. 1. JenRDD cash old (Net
Provision
Interim
Depreciation tax reserVe Liabilities year (Net (Net
Ch are Total creditors P&LAlc
Provisionfor Sundry General
capital
Share Furniture machine after after
VL flow
ANALSIS:
the 2020 after
balancedividend for
statement on depreciation)
depreciation)
2,00,000.assets
(Original the depreciation)
taxation
charged
land
sheets of 2,05,500
2,65,000
Total 2020
fo r
50,000 2020 1,50,0002,00,000 Goodl1 for Accounting&
Rs. on
15,000 was
of15,000 of 500 the Prepare
2019-2020 value
a Rsplant
. year revalued.
company: 20,000 2021 Rs
53,000 2021 was l0,000 wasRs. 20,000|
investments
Bil 12,000
12,000|
trading
| NonBuilding
20,000 2021 fund
1000
Cash 10
paid was was Financial
from flow LakhsDividend
Debtors Stock Plart Assets as
CashAssets duringmade statement.
the follows: WDV
Receivables Statement
during
the and balance for
year. on Building Rsthe
the
building sheets 2
Lakhs) year Analysis
year.
as Rs 2019
2,05,500
Rs. 2,65,000 2020
5,000 35,000
20,000 15,500 10,000 1,00,00015,000 on 60,000, was
7,000 5,000 was
20,000 2020 2020 sold
Machinery paid
Page 5 1,42,000 2021 and for
15,000 40,000
25,000 12,000 12,000
12,000
7,000 during 390 35 40 20 23220 390
2021. Rs 17 35 13 12 50 25
25,000 2021
3
 Dr 4.
dhya 2021
and
Following
The
following Prepare Creditors
TotalProvision
Debentures 8%
Outstanding Particulars
Creditors
Liabilities Retaincd
DepreciationearningsLongtelroman
epreciation
Ch
fundexpenses taxcreditors
Provision Particulars 4) 3)
Term General
reserve
Loss
Loan Profit
for Sundry Account &
Liabilities
capital
Share are 2) 1)
VL information:
4) 3) Additional
2) 1) Depreciation
Dividend sold FixedFixed cash
the
schedule Income
Machinery
DepreciationInterim at
summarized
bookassetsassets flow
tax dividend
paid statement:
shows for value. costing
(costing
provision of 2020 during 1,33,000 20,00021,00028,00014,000
Accounting&
Statement
Financial
Rs. on 12,35,500 5,00,000 Balance the
2020 the 2,75,000 1,25,000
1,75,000 76,250
20,000 51,500
45,000 6,500 premises
75,000 of 84,250. year the Rs.
Balance Rs. .
Rs12,000
for
25,000 Sheets amountcd ycar 4,000; 1,49,000| Total 21,00025,000
the was is 2021 37.000|
Stock
Debtors
13,000
202| is
Investments
22,000
Debtors
35,000 48,000 Shect yearprovided 11,89,000 Rs. were
balances
6,000 | acquired was 2,31,250
debtors Buildings
5,00,000 of accumulated
1,55,000
Sundry Machinery
1,50,000 to
was 76,250
Bank Equipments
76,500 ABC 3,000 purchased current
assets
Fixed aSsets
Other
of paid Rs.
Cash |
Particulars
Assets X Rs. at Pvt 5,500
Ltd., .
during Rsduring
Goodwill Cash Stock
75,000 Particulars
Assets
& Ltd
at 25,000 depreciation for
Bank the
the the as Analysis
year. on cash
end year. 2020and
of
the 12,35,50 2,00,000
1,00,0003,75,000 2020
12,500 5,00,000
45,0004,75,000 Rs.
2020 year 3,000 2021. 1,33,000
33,500 45,000
55,000 50,000 24,000
0 1,500) 8,00031,000
Page 6 2020
11,89,00 1,60,000 4,22,500 2021
2021 10,0007,000 40,500
74,000 were
37,000
21,500 45,000 1,49,000 58,000 32.00027,000
7,000
 Accounting& Financial Statement Analysis

Reserve for 500 1,000

30,000 30,000 Prepaid expenses
contingencies Stock 41,000 53,000
Profit & Loss account 8,000 11,500 Land &Buildings 75,000 75,000
Capital 1,15,000 1,15,000 | Machinery 26,00035,000
2,76,000 2,67,500 Total 2,76,000 2,67,500
The follovwing information is also available:
1. 10% dividend was paid in cash.
2. New machinery for Rs. 15,000 was purchased but old machinery costing Rs.
6,000 was sold for RS. 2,000, accumulated depreciation was Rs. 3,000.
3. Rs. 10,000, 8% Debentures were redeemed at Rs. 96 per debenture of Rs. 100.
4. Rs. 18,000 investments were sold at book value.
Prepare cash flow statement.

S. The following schedule shows the Balance Sheet of XLtd., at the end of the year 2020
and 2021
Particulars 2020 2021 Particulars 2020 2021

Liabilities Assets
Creditors 51,500 48,000 Cash & Bank 45,000 45,000
Outstanding expenses 6,500 6,000 balances 33,500 21,500
8% Debentures 45,000 35,000 Debtors 55,000 37,000
Depreciation fund 20,000 22,000 nvestments 500 1,000
Reserve for 30,00030,000 Prepaid expenses 41,000 53,000
contingencies r 8,000 iT,500 Stock 75,000 75,000
Profit & Loss account I,15,000 I5,000 Land &Buildings 26,000 35,000
Capital Machinery
2,76,000 2,67,500 Total 2,76,000 2,67,500
The following information is also available:
10% dividend was paid in cash.
New machinery for Rs. 15,000 was purchased but old machinery costing Rs.
6.000 was'sold for RS. 2,000,accumulated depreciationwas Rs. 3,000.
o Rs. 10,000, 8% Debentures were redeemed at Rs. 96 per debenture of Rs. 100.
Rs. 18,000 investments were sold at book value.
Prepare cash flow statement.

RATIO ANALYSIS

1. From the following details, you are required to compute current ratio and comment on its
position:
Stock: Rs. 1,25,000 CA Bank Overdraft: Rs. 1,10,000 eL
Sundry Debtors: Rs. 75,000 CA Outstanding Expenses: Rs. 40,000 L
Bills Receivables: Rs. 80,000 CA Short term Investments: Rs. 20,000 eA
Bills Payable: Rs. 20,000 e Cash in Hand: Rs. 50,000 CA
Cash at bank: Rs. 50,000 eA Sundry Creditors: Rs. 40,000 e
2. Current liabilities of a company are Rs. 3,00,000. Its current ratio is 3:1 and Quick ratio is
0.75:1.Calculate the value of stock.

Dr Sandhya Ch V L Page 7
 Accounting& Financial Statement Analysis

Ratio of an Organisation:
B. From the following compute Quick
Bills Payable: Rs. 10,000
Cash inhand: Rs. 5,000
Cash at bank: Rs. 3,000 Sundry Creditors: Rs. 5,000
Outstanding Expenses: Rs. 25,000
Stock: Rs. 5,000
Sundry debtors:Rs. 20,000 Bank loan: Rs. 15,000
Prepaid expenses: Rs. 2,000
ratio is
4. Current liabilities of a company are Rs.9,00,000. Its current ratio is 3:1 and Quick
0.75:t. Calculate the value of stock.
294
5. Working capital of a company is Rs. 3,00,000. Its current ratio is 2.5 and quick ratio is 1.5.
Find out the value of 1) current assets, 2) current liabilities and 3) closing stock.

6. The ratio's relating toCosmos Ltd.,are given as follows:

Gross Profit ratio 15%, Stock Velocity - 6 months, Debtors velocity - 3 months, Creditors
velocity - 3 months. Gross profit for the year ending 31.12.2010 amounts to Rs. 60,000.
Closing stock is more by 5,000 than opening stock.
Find out: 1) sales, 2) closing stock, 3)debtors and 4)creditors
7. Following is the Balance sheet of BSL Ltd as on 31.12.2012
Liabilities Amount Assets Amount
Equitycapital 10,00,000 Net fixed assets 8,00,000
Reserves 4,00,000 Stock 2,00,000
Secured loans 3,00,000 Debtors 6,00,000
Short term liabilities 4,00,000 Loans & Advances 5,00,000
Total 21,00,000 Total 21,00,000
You are required to compute:
Debt equity ratio, Current Ratio, Quick Ratio, Net worth Ratio and Fixed assets to Net
worth ratio
From the following Trading & profit/loss account calculate: Gross profit ratio, Operating
ratio, Net profit ratio, Operating profit ratio and stock turnover ratio.
Particulars Amount Particlars Amount
To Opening stock 76,250 By Sales 5,00,000
To Purchases 3,15,250 By Closing stock 98,500
To Carriage inwards 2,000
To Wages 5,000
To Gross profit c/fd 2,00,000

Total 5,98,500 Total 5,98,500

To Admn. Expenses 1,01,000 By Gross profit B/fd 2,00,000
To Selling Expenses 12,000 By Profit on sales of shares 6,000
To Non-operating Exp 2,000
To Financial Expenses 7,000
To Net profit 84,000
Total 2,06,000 Total 2,06,000

9. XYZ Ltd has the following capital structure:

30,000 equity shares of Rs. 100 each 30,00,000
10% 5,000 preference shares of Rs. 100 each 5,00,000
10% Debentures of Rs. 100 each 5,00,000
Total 40,00,000

Dr Sandhya Ch V L Page 8
 Accounting& Financial Statement Analysis
During the previous year the company made an operating profit
10,00,000. Determine the EPS, DPS and Price Earning Ratio (EBl)oa
(PE ratio). You may assume iat
pay out policyof 50%, tax rate 50% and market price per
share Rs. 200.
10. You are furnished the following information from the books of TSL Marketing Ltd., for
the
year ended 31.3.12:
a. Equityshare capital (Rs. 10each) Rs. 8,00,000
b. 9% Preference share capital (Rs. 10 each) Rs. 3,00,000
Total Rs. 11,00,000
C. Profit after tax at 60% Rs. 2,70,000
d. Depreciation Rs. 60,000
e. Equity dividend paid 20%
f. Market price per share Rs. 40

Find out: a) dividend yield ratio, b) preference coverage and equity coverage ratio, c)
earning per share, d) dividend payment ratio, and e) price earning ratio.

11. With the helpof the following ratios regarding India Films Ltd, draw the Balance sheet of the
company for the year 2010:
Current Ratio - 2.5; Liquidity Ratio - 1.5; Net working capital Rs. 3,00,000; Stock
turnover ratio - 6 times; Gross Profit ratio 020%; Fixed Assetsturnover ratio - 2 times; Debt
Collection period - 2 months; Fixed Assets to shareholders net worth - 0.80; Reserves &
surplus to capital -0.50.
2. Using the following information complete the balance sheet of JK Ltd.
Long term debt to net worth 0.5:1
b. Total assets turnover ratio 2.5 times

C. Average collection period ½ month

d. Inventory turnover ratio 9 times

e. Gross profit margin 10%

f. Acid test ratio 1:1

Balance sheet as on
Amount Assets Amount
Liabilities
Equity capital 1,00,000 Fixed assets
Retained earnings 1,00,000 Inventory
Debtors
Long term debts
1,00,000 Cash
Creditors