{"id":16242,"date":"2023-03-15T16:53:04","date_gmt":"2023-03-15T11:23:04","guid":{"rendered":"https:\/\/gstguntur.com\/?p=16242"},"modified":"2023-03-15T16:54:43","modified_gmt":"2023-03-15T11:24:43","slug":"financial-analysis-and-planning-ratio-analysis-ca-inter-fm-study-material","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/financial-analysis-and-planning-ratio-analysis-ca-inter-fm-study-material\/","title":{"rendered":"Financial Analysis and Planning-Ratio Analysis \u2013 CA Inter FM Study Material"},"content":{"rendered":"

Financial Analysis and Planning-Ratio Analysis \u2013 CA Inter FM Study Material<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Financial Analysis and Planning-Ratio Analysis \u2013 CA Inter FM Study Material<\/h2>\n

Theory Questions<\/strong><\/p>\n

Question 1.
\nExplain the Operating ratio and Price earnings ratio. (4 Marks May 2011)
\nAnswer:
\nOperating ratio: Operating ratio is the part of profitability ratios, it is used to calculate percentage of operating cost with sales and indicates operating efficiency of the firm with which it operates its business. It is calculated as:
\nOperating Ratio = \\(\\frac{\\text { Operating Cost (COGS }+ \\text { Operating Expenses) }}{\\text { Sales }}\\) \u00d7 100<\/p>\n

Price Earnings Ratio (P\/E Ratio): The price earnings ratio indicates payback period within which entire amount of investment in on equity share is expected to be recovered in form of EPS. It relates earnings to market price and is used as indicator of growth potential of an investment, risk association, company image etc. It is calculated as:
\nPrice Earnings Ratio = \\(\\frac{\\text { Market Price Share (MPS) }}{\\text { Earning Per Share (EPS) }}\\)<\/p>\n

\"Financial<\/p>\n

Question 2.
\nExplain the important ratios that would be used in each of the following situations:
\n1. A bank is approached by a company for a loan of \u20b9 50 lakhs for working capital purposes.
\n2. A long term creditor interested in determining whether his claim is adequately secured.
\n3. A shareholder who is examining his portfolio and who is to decide whether he should hold or sell his holding in the company.
\n4. A finance manager interested to know the effectiveness with which a firm uses its available resources. (4 Marks May 2012)
\nAnswer:
\nImportant Ratios used in different situations:
\n1. Liquidity Ratios: Liquidity ratio mainly Current ratio and Quick ratio would be used by the bank to check the ability of the company to pay its short-term liabilities.<\/p>\n

2. Capital Structure\/Leverage Ratios: Long-term creditor would use the capital structure\/leverage ratios to evaluate long term stability and structure of the firm. A long term creditors may use Debt-service cover\u00acage and interest coverage ratio to check whether his claim is adequately secured or not.<\/p>\n

3. Profitability Ratios: The shareholder would use the profitability ratios mainly return on equity, EPS and DPS to evaluate the profitability of the firm.<\/p>\n

4. Activity Ratios: The finance manager would use capital turnover ratio, current and fixed assets turnover ratio, stock, debtors and creditors turnover ratio these ratios to evaluate the efficiency with which the firm manages and utilises its assets.<\/p>\n

Question 3.
\nComment on the Debt Service Coverage Ratio. (4 Marks May 2014)
\nAnswer:
\nDebt Service Coverage Ratio (DSCR): Financial institutions are used DSCR to evaluate firm\u2019s ability to pay off current interest and instalments. It is calculated as:
\nDebt Service Coverage Ratio = \\(\\frac{\\text { Earning Available for Debt Service }}{\\text { Interest }+ \\text { Instalments }}\\)
\nEarning for debt service = Net profit (Earning after taxes) + Non-cash operating expenses service like depreciation and other amortizations + Interest + other adjustments like loss on sale of Fixed Asset etc.<\/p>\n

\"Financial<\/p>\n

Practical Problems<\/strong><\/p>\n

Various Ratios<\/strong><\/p>\n

Question 1.
\nThe financial statements of a company contain the following information for the year ending 31st March, 2011:
\nStatement of profit for the year ended 31st March, 2011
\n\"Financial
\nYou are required to calculate:
\n(i) Quick Ratio
\n(ii) Debt-Equity Ratio
\n(iii) Return on Capital Employed, and
\n(iv) Average Collection Period (Assuming 360 days in a year) (8 Marks Nov. 2011)
\nAnswer:
\n\"Financial<\/p>\n

\"Financial<\/p>\n

Question 2.
\nThe following accounting information and financial ratios of M Limited relate to the year ended 31st March, 2012:
\nInventory Turnover Ratio – 6 Times
\nCreditors Turnover Ratio – 10 Times
\nDebtors Turnover Ratio – 8 Times
\nCurrent Ratio – 2.4
\nGross Profit Ratio – 25%
\nTotal sales \u20b9 30,00,000; cash sales is 25% of credit sales; cash purchase \u20b9 2,30,000; working capital \u20b9 2,80,000; closing inventory is \u20b9 80,000 more than opening inventory.
\nYou are required to calculate:
\n(i) Average Inventory
\n(ii) Purchases
\n(iii) Average Debtors
\n(iv) Average Creditors
\n(v) Average Payment Period
\n(vi) Average Collection Period
\n(vii) Current Assets
\n(viii) Current Liabilities (8 Marks Nov. 2012)
\nAnswer:
\n(i) Average Inventory:
\nInventory Turnover Ratio = \\(\\frac{\\text { COGS }}{\\text { Average Inventory }}\\) = 6 times
\nAverage Inventory = \\(\\frac{\\text { COGS }}{6}\\) = \\(\\frac{30,00,000-25 \\%}{6}\\)
\n= \u20b9 3,75,000<\/p>\n

(ii) Purchases: Purchase = COGS + Closing Stock – Opening stock
\n= (30,00,000 – 25%) + 80,000 = \u20b9 23,30,000<\/p>\n

(iii) Average Debtors:
\nDebtors Turnover Ratio = \\(\\frac{\\text { Credit Sales }}{\\text { Average Debtors }}\\) = 8 times
\nAverage Debtors = \\(\\frac{\\text { Credit Sales }}{8 \\text { Times }}\\) = \\(\\frac{24,00,000}{8 \\text { Times }}\\)
\n= \u20b9 3,00,000
\nCredit Sales:
\nTotal Sales = Credit Sales + Cash Sales
\n30,00,000 = Credit Sales + 25% of Credit Sales
\n125% of Credit Sales = \u20b9 30,00,000
\nCredit Sale = \\(\\frac{30,00,000}{125 \\%}\\) = \u20b9 24,00,000<\/p>\n

(iv) Average Creditors:
\nCreditors Turnover Ratio = \\(\\frac{\\text { Credit Purchase }}{\\text { Average Creditors }}\\) = 10 Times
\nAverage Creditors = \\(\\frac{\\text { Credit Purchase }}{10 \\text { Times }}\\)
\n= \\(\\frac{23,30,000-2,30,000}{10}\\) = \u20b9 2,10,000<\/p>\n

(v) Average Payment period = \\(\\frac{365 \\text { Days }}{\\text { Creditors Turnover Ratio }}\\) = \\(\\frac{365 \\text { Days }}{10}\\)
\n= 36.5 Days<\/p>\n

(vi) Average Collection Period = \\(\\frac{365 \\text { Days }}{\\text { Debtors Turnover Ratio }}\\) = \\(\\frac{365 \\text { Days }}{8}\\)
\n= 45.625 Days<\/p>\n

(vii) CurrenrAssets Working Capital = Current Assets – Current Liabilities
\n= 2,80,000 ……………… (i)
\n\\(\\frac{\\text { Current Assets }}{\\text { Current Liabilities }}\\) = 2.4
\nCurrent Assets = 2.4 Current Liabilities ………………. (ii)
\nCA – CL = 2,80,000
\n2.4 CL – CL = 2,80,000
\nCurrent Liabilities = \\(\\frac{2,80,000}{1.40}\\) = \u20b9 2,00,000
\nCurrent Assets = 2.4 \u00d7 \u20b9 2,00,000 = \u20b9 4,80,000<\/p>\n

(viii) current Liabilities = \u20b9 2,00,000<\/p>\n

\"Financial<\/p>\n

Question 3.
\nThe following information relates to Beta Ltd. for the year ended 31st<\/sup> March 2013.
\nNet Working Capital – \u20b9 12,00,000
\nFixed Assets to Proprietor\u2019s Fund Ratio – 0.75
\nWorking Capital Turnover Ratio – 5 times
\nReturn on Equity (ROE) – 15%
\nThere is no debt capital.<\/p>\n

You are required to calculate:
\n(i) Proprietor\u2019s Fund
\n(ii) Fixed Assets
\n(iii) Net Profit Ratio. (5 Marks May 2013)
\nAnswer:
\n(i) Proprietor\u2019s Fund = Net Working Capital + Fixed Assets
\n= 12,00,000 + 0.75 Proprietor\u2019s Fund
\n0.25 Proprietor\u2019s Fund = 12,00.000
\nProprietor\u2019s Fund = \\(\\frac{12,00,000}{0.25}\\) = 48,00,000<\/p>\n

(ii) Fixed Assets:
\nFixed Assets = 0.75 Proprietor\u2019s Fund
\n= 0.75 of 48,00,000 = 36,00,000<\/p>\n

(iii) Net profit Ratio = \\(\\frac{\\text { PAT }}{\\text { Sales }}\\) \u00d7 100
\n= \\(\\frac{7,20,000}{60,00,000}\\) \u00d7 100 = 12%<\/p>\n

Working Notes:
\nPAT = 15% of Equity Fund\/Proprietor\u2019s Fund
\n= 15% of 48,00,000 = 7,20,000
\nSales = 5 times of working capital
\n= 5 \u00d7 12,00,000 = 60,00,000<\/p>\n

\"Financial<\/p>\n

Question 4.
\nThe following information relate to a concern:
\nDebtors velocity – 3 months
\nCreditors velocity – 2 months
\nStock turnover ratio – 1.5
\nGross profit ratio – 25%
\nBills receivables – \u20b9 25,000
\nBills payables – \u20b9 10,000
\nGross profit – \u20b9 4,00,000
\nFixed assets turnover ratio – 4
\nClosing stock of the period is \u20b9 10,000 above the opening stock.<\/p>\n

Find out:
\n1. Sales and cost of goods sold
\n2. Sundry Debtors
\n3. Sundry Creditors
\n4. . closing Stock
\n5. FIxed Assets . (8 Marks May 2017)
\nAnswer:
\n1. Sales = Gross Profit \u00f7 Gross Profit Ratio
\n= \u20b9 4,00,000 \u00f7 25% = \u20b9 16,00,000
\nCost of goods sold = Sales – Gross Profit
\n= \u20b9 16,00,000 – \u20b9 4,00,000 = \u20b9 12,00,000<\/p>\n

2. Sundry debtors = Credit sales \u00d7 3\/12 – Bills receivables
\n= \u20b9 16,00,000 \u00d7 3\/12 – \u20b9 25,000 = \u20b9 3,75,000<\/p>\n

3. Sundry creditors = Credit Purchase \u00d7 2\/12 – Bills payables
\n= \u20b9 12,10,000 \u00d7 2\/12 – \u20b9 10,000 = \u20b9 1,91,667
\nCredit purchase = COGS + Closing Stock – Opening Stock
\n= \u20b9 12,00,000 + \u20b9 10,000 = \u20b9 12,10,000<\/p>\n

\"Financial<\/p>\n

4. Closing Stock : Average Stock = COGS \u00f7 1.5 = \u20b9 12,00,000 \u00f7 1.5 = \u20b9 8,00,000
\nAverage Stock = \\(\\frac{\\text { Opening Stock }+ \\text { Closing Stock }}{2}\\)
\nOpening Stock + Closing Stock
\n8,00,000 \u00d7 2 = Opening Stock + Closing Stock
\n16,00,000 = (Closing – 10,000) + Closing Stock
\nClosing Stock = \u20b9 8,05,000 [Opening Stock = Closing – 10,000]<\/p>\n

5. Fixed Asset Turnover = Sales \u00f7 Fixed asset
\nFixed Asset = 16,00,000 \u00f7 4 = \u20b9 4,00,000
\nAssumption:<\/p>\n

    \n
  1. All sales are credit sales<\/li>\n
  2. All purchases are credit Purchase<\/li>\n
  3. Stock Turnover Ratio and Fixed Asset Turnover Ratio may be calculated either on Sales or on Cost of Goods Sold.<\/li>\n<\/ol>\n

    Question 5.
    \nThe following is the information of XML Ltd. relate to the year ended 31-03-2018:
    \nGross profit – 20% of sales
    \nNet profit – 10% of sales
    \nInventory holding period – 3 months
    \nReceivable holding period – 3 months
    \nNon-current assets to sales – 1 : 4
    \nNon-current assets to current assets – 1 : 2
    \nCurrent ratio – 2 : 1
    \nNon-current liabilities to current liabilities – 1 : 1
    \nShare capital to reserve and surplus – 4 : 1
    \nNon-current assets as on 31.03.2017 – \u20b9 50,00,000<\/p>\n

    Assume that:
    \n(a) No change In Non-current assets during the year 2017-18.
    \n(b) No depreciation charged on Non-current assets during the year 2017-18
    \n(c) Ignoring tax
    \nYou are required to calculate cost of goods sold, Net profit, Inventory, recei-vables and cash for the year ended on 31.03.2018. (5 Marks Nov. 2018)
    \nAnswer:
    \n(a) Net Profit = 10% of sales = 10% of \u20b9 2,00,00,000 = \u20b9 20,00,000<\/p>\n

    (b) Cost of Goods Sold = Sales – Gross Profit
    \n= \u20b9 2,00,00,000 – 20% = \u20b9 1,60,00,000<\/p>\n

    (c) Inventory = COGS \u00d7 3\/12 = \u20b9 1,60,00,000 \u00d7 3\/12 = \u20b9 40,00,000
    \n(d) Receivables = Sales \u00d7 3\/12 = \u20b9 2,00,00,000 \u00d7 3\/12 = \u20b9 50,00,000
    \n(e) Cash = Current assets – Stock – receivables
    \n= \u20b9 1,00,00,000 – \u20b9 40,00,000 – \u20b9 50,00,000 = \u20b9 10,00,000
    \nWorking:
    \n\"Financial<\/p>\n

    \"Financial<\/p>\n

    Question 6.
    \nFollowing figures and ratios are related to a company Q Ltd.:
    \nSales for the year (all credit) – \u20b9 30,00,000
    \nGross Profit Ratio – 25%
    \nFixed Assets Turnover (based on COGS) – 1.5
    \nStock turnover (based on COGS) – 6
    \nLiquid Ratio – 1 : 1
    \nCurrent Ratio – 1.5 : 1
    \nReceivables (Debtors) Collection Period – 2 months
    \nReserve and Surplus to Share Capital – 0.6 : 1
    \nCapital Gearing Ratio – 0.5
    \nFixed Assets to Net Worth – 1.20 : 1<\/p>\n

    You are required to calculate Closing Stock, Fixed Assets, Current Assets, Debtors and Net Worth. (5 Marks May 2019)
    \nAnswer:
    \n(1) Closing Stock:
    \nStock Turnover = COGS \u00f7 Closing Stock
    \n6 = (\u20b9 30,00,000 – 25%) \u00f7 Closing Stock
    \nClosing Stock = \u20b9 3,75,000<\/p>\n

    (2) Fixed Assets:
    \nFixed Assets Turnover = COGS \u00f7 Fixed Assets
    \n1.5 = (\u20b9 30,00,000 – 25%) \u00f7 Fixed Assets
    \nFixed Assets = \u20b9 15,00,000<\/p>\n

    (3) Current Assets:
    \nLiquid Ratio = [CA – Stock (Liquid Assets)] \u00f7 Current liabilities
    \n1 = (CA – \u20b9 3,75,000) \u00f7 Current liabilities
    \nCurrent Liabilities = Current Assets – \u20b9 3,75,000 ……….. Equation (i)
    \nCurrent Ratio = Current Assets \u00f7 Current liabilities
    \n1.5 Current Liabilities = Current Assets
    \n1.5 (Current Assets – \u20b9 3,75,000) = Current Assets
    \nCurrent Assets = \u20b9 11,25,000<\/p>\n

    \"Financial<\/p>\n

    (4) Debtors:
    \nDebtors = Credit Sales \u00d7 Average collection Period\/12
    \n= \u20b9 30,00,000 \u00d7 2\/12
    \n= \u20b9 5,00,000<\/p>\n

    (5) Net Worth:
    \nFixed Assets to Net Worth = Fixed Assets \u00f7 Net Worth
    \n1.20 = \u20b9 15,00,000 \u00f7 Net Worth
    \nNet Worth = \u20b9 12,50,000<\/p>\n

    Question 7.
    \nFollowing information has been gathered from the books of Tram Ltd. The equity share of which is trading in the stock market at \u20b9 14.
    \n\"Financial
    \nCalculate the following:
    \n(a) Return on Capital Employed
    \n(b) Earnings Per Share
    \n(c) PE Ratio (5 Marks Nov. 2019)
    \nAnswer:
    \n\"Financial
    \nWorking Note:
    \nCapital Employed = Equity Share Capital + Reserves + Preference Share Capital + Debentures
    \n= \u20b9 10,00,000 + \u20b9 8,00,000 + \u20b9 2,00,000 + \u20b9 6,00,000
    \n= \u20b9 26,00,000<\/p>\n

    \"Financial<\/p>\n

    Question 8.
    \nFollowing Information relates to RM Co. Ltd.
    \nTotal Assets employed – \u20b9 10,00,000
    \nDirect Cost – \u20b9 5,50,000
    \nOther Operating Cost – \u20b9 90,000
    \nThe goods will be sold to customers at 150 percent of the direct costs. 50 percent of the assets being financed by borrowed capital at an Interest cost of 8 percent per year. Tax rate is assumed to be 30 percent.
    \nYou are required to calculate:
    \n(a) Net profit margin;
    \n(b) Return on Assets;
    \n(e) Asset turnover and
    \n(d) Return on owners\u2019 equity. (5 Marks Nov. 2020)
    \nAnswer:
    \n\"Financial<\/p>\n

    Dupont Roe<\/strong><\/p>\n

    Question 9.
    \nA limited Company\u2019s books reveals following information:
    \nNet Income : \u20b9 13,60,000
    \nShareholder’s Equity : \u20b9 14,00,000
    \nAssets Turnover : \u20b9 2.5 times
    \nNet Profit Margin : \u20b9 12%
    \nYou are required to calculate ROE of the company based on the \u2018DuPont model’. (5 Marks Nov. 2018)
    \nAnswer:
    \nReturn on Equity = Net Profit Margin \u00d7 Asset Turnover \u00d7 Equity Multiplier
    \n= 12% \u00d7 2.5 times \u00d7 3 times = 90%
    \nWorking Notes:
    \n1. Sales.
    \nNet profit Margin = Net Income \u00f7 Sales
    \nSales = \u20b9 3,60,000 \u00f7 12% = \u20b9 30,00,000<\/p>\n

    2. ToralAssets:
    \nAsset Turnover = Sales \u00f7 Total Assets = 2.5 times
    \nTotal Assets = Sales \u00f7 2.5 = 30,00,000 \u00f7 2.5 = \u20b9 12,00,000<\/p>\n

    3. Equity Multiplier = Total Assets \u00f7 Equity
    \n= \u20b9 12,00,000 \u00f7 \u20b9 4,00,000 = 3 times<\/p>\n

    \"Financial<\/p>\n

    Trading and Profit & Loss Account and Balance Sheet<\/strong><\/p>\n

    Question 10.
    \nThe assets of SONA Ltd. consist of fixed assets and current assets, while its current liabilities comprise bank credit in the ratio of 2 : 1.
    \nYou are required to prepare the Balance Sheet of the company as on 31st March 2013 with the help of following information:
    \nShare Capital : \u20b9 5,75,000
    \nWorking Capital (CA – CL) : \u20b9 1,50,000
    \nGross Margin : 25%
    \nInventory Turnover : 5 times
    \nAverage Collection Period : 1.5 months
    \nCurrent Ratio : 1.5 : 1
    \nQuick Ratio : 0.8 : 1
    \nReserves & Surplus to Bank & Cash : 4 times
    \nAnswer:
    \nSONA Ltd.
    \nBalance Sheet
    \n(As at 31.03.2013)
    \n\"Financial<\/p>\n

    Working Notes:
    \n1. Calculation of Current Assets and Current Liabilities:
    \nCurrent Ratio = \\(\\frac{\\mathrm{CA}}{\\mathrm{CL}}\\) = 1.5
    \nCA = 1.5 CL
    \nCA – CL = 1,50,000
    \n1.5 CL – CL = .5 CL = 1,50,000
    \nCL = 3,00,000
    \nCA = 1.5 CL = 1.5 \u00d7 3,00,000
    \n= 4,50,000<\/p>\n

    2. Calculation of Bank Credit and other CL:
    \n\\(\\frac{C L}{\\text { Bank Credit }}\\) = 2 : 1
    \nBank credit = CL \u00f7 2 = 3,00,000 \u00f7 2
    \n= 1,50,000
    \nOther CL = 1,50,000<\/p>\n

    3. Calculation of Inventory:
    \nQuick Ratio = \\(\\frac{\\mathrm{CA}-\\text { Inventory }}{\\mathrm{CL}}\\) = 0.8
    \nCA – Inventory = 0.8 CL
    \n4,50,000 – Inventory = 0.8 \u00d7 3,00,000
    \nInventory = 2,10,000<\/p>\n

    \"Financial<\/p>\n

    4. Calculation of Debtors and Bank and Cash:
    \nInventory Turnover = \\(\\frac{\\text { COGS }}{\\text { Inventory }}\\) = 4
    \nCOGS = 5 \u00d7 2,10,000 = 10,50,000
    \nSales = \\(\\frac{\\text { COGS }}{100-\\text { margin }}\\) \u00d7 100 = \\(\\frac{10,50,000}{100-25}\\) \u00d7 100
    \n= 14,00,000
    \nDebtors = Sales \u00d7 \\(frac{\\text { Average Collection Period }}{12}\\)
    \n= 14,00,000 \u00d7 1.5\/12 = 1,75,000
    \nBank and Cash = CA – Inventory – Debtors
    \n= 4,50,000 – 2,10,000 – 1,75,000
    \n= 65,000<\/p>\n

    5. Calculation of Reserves & Surplus:
    \n\\(\\frac{\\text { Reserves & Surplus }}{\\text { Bank & Cash }}\\) = 4 times
    \nReserves & Surplus = 4 \u00d7 65,000 = 2,60,000<\/p>\n

    Question 11.
    \nNOOR Limited provides the following information for the year ending 31st March, 2014:
    \nEquity Share Capital : \u20b9 25,00,000
    \nClosing Stock : \u20b9 6,00,000
    \nStock Turnover Ratio : 5 Times
    \nGross Profit Ratio : 25%
    \nNet Profit\/Sale : 20%
    \nNet profit\/Capital : 1 \/4<\/p>\n

    You are required to prepare Trading and Profit and Loss Account for the year ending 31st March, 2014. (5 Marks May 2014)
    \nAnswer:
    \nTrading and Profit & Loss Account
    \n(For the year ending 31st March, 2014)
    \n\"Financial<\/p>\n

    (ii) Calculation of Sales:
    \n\"Financial
    \nAverage Stock \u00d7 2 = Opening Stock + Closing Stock
    \n4,68,750 \u00d7 2 = Opening Stock + 6,00,000
    \nOpening Stock = 9,37,500 – 6,00,000 = \u20b9 3,37,500
    \nNote: All figures in Trading and Profit and Loss A\/ c are balancing figures except calculated in working notes.<\/p>\n

    \"Financial<\/p>\n

    Question 12.
    \nSRS Ltd. has furnished the following ratios and information relating to the year ended 31st March, 2015.
    \n\"Financial
    \nYou are required to:
    \n(i) Calculate the operating expenses for the year ended 31 st March, 2015.
    \n(ii) Prepare Balance Sheet as on 31st March, 2015. (8 Marks May 2015)
    \nAnswer:
    \n(i) Operating Expenses = Gross Profit – EBIT
    \n= \u20b9 42,00,000 – \u20b9 8,10,000 = \u20b9 33,90,000
    \n\"Financial<\/p>\n

    Working Notes:
    \n(a) Return on Net Worth = \\(\\frac{\\text { PAT }}{\\text { Net Worth }}\\) \u00d7 100 = 25%
    \nNet Worth = \\(\\frac{3,75,000}{25 \\%}\\) = 15,00,000
    \nNet Worth = Share Capital + Reserve = 15,00,000
    \nShare Capital to Reserve = 7 : 3
    \nShare Capital = 15,00,000 \u00d7 7\/10 = 10,50,000
    \nReserve = 15,00,000 \u00d7 3\/10 = 4,50,000
    \n\"Financial<\/p>\n

    \"Financial<\/p>\n

    Question 13.
    \nVRA Limited has provided the following information for the year ending 31st March, 2015:
    \nDebt Equity Ratio – 2 : 1
    \n14% long term debt – \u20b9 50,00,000
    \nGross Profit Ratio – 30%
    \nReturn on equity – 50%
    \nIncome Tax Rate – 35%
    \nCapital Turnover Ratio – 1.2 Times
    \nOpening Stock – \u20b9 4,50,000
    \nClosing Stock – 8% of sales<\/p>\n

    You are required to prepare Trading and Profit and Loss Account for the year ending 31st March, 2015. (8 Marks Nov. 2015)
    \nAnswer:
    \nTrading and Profit & Loss Account
    \n(For the year ending 31st March, 2015)
    \n\"Financial
    \nWorking Notes:
    \n(i) Calculation of Equity:
    \n\\(\\frac{\\text { Debt }}{\\text { Equity }}\\) = 2 : 1
    \nEquity = Debt \u00f7 2
    \n50,00,000 \u00f7 2 = \u20b9 25,00,000<\/p>\n

    (ii) Calculation of Net Profit
    \nAfter Tax (PA T):
    \nReturn on Equity = \\(\\frac{\\text { PAT }}{\\text { Equity }}\\) \u00d7 100 = 50%
    \nProfit After Tax = 50% of 25,00,000 = \u20b9 2,50,000<\/p>\n

    (iii) Calculation of Income Tax:
    \nIncome Tax = 35% of PBT = 35% of \\(\\frac{\\text { PAT }}{1-t}\\)
    \n= 35% of \\(\\frac{12,50,000}{1-.35}\\) = 6,73,077<\/p>\n

    (iv) Calculation of Sales:
    \nCapital Turnover Ratio = \\(\\frac{\\text { Sales }}{\\text { Capital }}\\) = \\(\\frac{\\text { Sales }}{\\text { Equity + Debt }}\\)
    \n\\(\\frac{\\text { Sales }}{25,00,000+50,00,000}\\) = 1.2 times
    \nSales = 75,00,000 \u00d7 1.2 = \u20b9 90,00,000<\/p>\n

    \"Financial<\/p>\n

    Question 14.
    \nWith the following ratios and further information given below prepare a Trading Account, Profit and Loss Account and Balance Sheet of ABC Company. (8 Marks May 2016)
    \nFixed Assets – \u20b9 40,000,000
    \nClosing Stock – \u20b9 4,00,000
    \nStock turnover ratio – 10 times
    \nGross Profit Ratio – 25%
    \nNet Profit Ratio – 20%
    \nNet profit to capital – 1\/5
    \nCapital to total liabilities – 1\/2
    \nFixed assets to capital – 5\/4
    \nFixed assets\/Total current assets – 5\/7
    \nAnswer:
    \nTrading and Profit & Loss Account
    \n\"Financial
    \nWorking Notes:
    \n(i) Calculation of Capital
    \n\"Financial<\/p>\n

    (ii) Calculation of Other Liabilities:
    \n\"Financial
    \nAverage stock = (Opening Stock + Closing Stock) \u00f7 2
    \nOpening Stock = (2,40,000 \u00d7 2) – 4,00,000 = \u20b9 80,000<\/p>\n

    \"Financial<\/p>\n

    Question 15.
    \nThe following figures and ratios pertains to ABG Company Limited for the year ending 31st March, 2016:
    \nAnnual sales (credit) – \u20b9 50.00,000
    \nGross Profit ratio – 28%
    \nFixed assets turnover ratio (based on COGS) – 1.5
    \nStock turnover ratio (based on COGS) – 6
    \nQuick ratio – 1 : 1
    \nCurrent ratio – 1.5
    \nDebtors collection period – 45 days
    \nReserve and surplus to Share capital – 0.60 : 1
    \nCapital gearing ratio – 0.5
    \nFixed assets to net worth – 1.2 : 1<\/p>\n

    You are required to prepare the Balance Sheet as at 31 st March, 2016 based on the above information. Assume 360 days in a year. (8 Marks Nov. 2016)
    \nAnswer:
    \nBalance Sheet
    \n\"Financial
    \nWorking Notes:
    \n(i) Cost of Goods Sold = Sales – Gross Profit (28% of Sales)
    \n= \u20b9 50,00,000 – \u20b9 4,00,000 = \u20b9 36,00,000<\/p>\n

    (ii) Closing Stock = Cost of Goods Sold\/Stock Turnover
    \n= \u20b9 36,00,000\/6 = \u20b9 6,00,000<\/p>\n

    (iii) Fixed Assets = Cost of Goods Sold\/Fixed Assets Turnover
    \n= \u20b9 36,00,000\/1.5 = \u20b9 24,00,000<\/p>\n

    (iv) Current Assets and Current Liabilities
    \nStock – 6,00,000 = (CR – LR) \u00d7 CL OR CL = \u20b9 12,00,000
    \n= (1.5 – 1)CL
    \nCurrent Assets = 12,00,000 \u00d7 1.5 = \u20b9 18,00,000<\/p>\n

    (v) Debtors = Sales \u00d7 Debtors Collection Period (days)\/360 days
    \n= \u20b9 50,00,000 \u00d7 45\/360 = \u20b9 6,25,000<\/p>\n

    (vi) Net worth = Fixed Assets\/ 1.2
    \n= \u20b9 24,00,000\/1.2 = \u20b9 20,00,000<\/p>\n

    (vii) Reserves and Surplus and Share Capital
    \nReserves & Surplus and Share Capital = 0.6 + 1 = 1.6
    \nReserves and Surplus = \u20b9 20,00,000 \u00d7 0.6\/1.6 = \u20b9 7,50,000
    \nShare Capital = Net worth – Reserves and Surplus
    \n= \u20b9 20,00,000 – \u20b9 7,50,000 = \u20b9 12,50,000<\/p>\n

    (viii) Long-term Debts
    \nCapital Gearing Ratio = Long-term Debts\/Equity Shareholders\u2019 Fund (Net worth)
    \nLong-term Debts = \u20b9 20,00,000 \u00d7 0.5 = \u20b9 10,00,000<\/p>\n

    \"Financial<\/p>\n

    Question 16.
    \nXY Ltd. provides the following information for the year ending 31st March, 2017:
    \nEquity share capital – \u20b9 8,00,000
    \nClosing Stock – \u20b9 1,50,000
    \nStock turnover ratio – 5 times
    \nGross Profit Ratio – 20%
    \nNet Profit \/ Sales – 16%
    \nNet profit\/Capital – 25%
    \nYou are required to prepare Trading and Profit & Loss account for the year ending 31st March, 2017. (8 Marks Nov. 2017)
    \nAnswer:
    \nTrading and Profit & Loss Account
    \n\"Financial<\/p>\n

    Working Notes:
    \n(i) Calculation of Net Profit:
    \n\\(\\frac{\\text { Net Profit }}{\\text { Capital }}\\) = 25% or Net Profit = 8,00,000 \u00d7 25%
    \n= \u20b9 2,00,000<\/p>\n

    (ii) Calculation of Sales:
    \n\\(\\frac{\\text { Net Profit }}{\\text { Sales }}\\) = 16% or Sales Sales = 2,00,000 \u00f7 16%
    \n= \u20b9 12,50,000<\/p>\n

    (iii) Calculation of Opening Stock:
    \nCOGS = 80% of Sales = 80% of 12,50,000 = 10,00,000
    \n\\(\\frac{\\text { COGS }}{\\text { Average Stock }}\\) = 5 or Average Stock = 10,00,000 \u00f7 5
    \nAverage stock = (Opening Stock + Closing Stock) \u00f7 2 = 2,00,000
    \nOpening Stock = (2,00,000 \u00d7 2) – 1,50,000 = \u20b9 2,50,000<\/p>\n

    \"Financial<\/p>\n

    Question 17.
    \nEquity share capital G Ltd. has furnished the following information relating to the year ended 31st March, 2017 and 31st March, 2018:
    \n\"Financial<\/p>\n