MB18104 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS

UNIT I
Session 1 SLO1
Meaning of Accounting:
“The main purpose of accounting is to ascertain profit or loss during a specified period, to show
financial condition of the unit on a particular date and to have control over the unit’s property.
Such accounting records are required to be maintained to measure the income of the unit and
communicate the information so that it may be used by various interest groups”, hence;
“Accounting is a discipline which records, classifies, summarizes and interprets financial
information about the activities of a concern so that intelligent decisions may be taken about the
concern and the various interest groups interested in the concern”
“The financial accounting is an art of recording, classifying and summarising in a significant
manner and in terms of money transactions and events which are in part, at least of a financial
character and interpreting the results thereof”. - American Institute of Certified Public
Accountants
“Accounting is the process of identifying, measuring and communicating economic information
to permit informed judgments and decisions by users of information” - American Accounting
Association

Development of Accounting:
Chanakya in his Arthashastra emphasized the need for proper accounting and auditing. But
modern system of accounting has its origin to Pacioli who lived in Italy in the 18th century.

Functions of Accounting:
1. Recording – is the basic function of accounting. It is done in “Journal”. It is divided into
subsidiary books such as cash, purchases, sales, etc. Dealing in financial transactions
2. Classifying – is done in “Ledger” in separate account heads.
3. Summarising – through Trial balance, Income Statement and Balance Sheet.
4. Analyzing & interpreting – end users can make meaningful judgement.
5. Communicating the information

Objectives of Accounting
• Making decisions concerning use of limited resources
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• Identification of crucial decision areas and deciding objectives and goals
• Effective directing and controlling of unit’s resources
• Maintaining and reporting on the custodianship of resources
• Facilitating social functions and control

Systems of Book Keeping:

Book-keeping is the art of recording business transactions in a regular and systematic manner.
1. Cash System / Single Entry System:
 An incomplete double entry system.
 According to Kohler, it is a system of book-keeping in which as a rule only cash and
personal accounts are maintained.
 It is developed by some business houses for convenience to keep only some essential
records. Example, charity organisations.
2. Mercantile (Accrual) system / Double Entry Accounting System
 Originated in 1494 by Italian Merchant Fra Luco Pacioli
 De Computis et Scripturis‟ the first Book on Double Entry Accounting System by
Pacioli
 Every business transaction has two aspects
 The method of writing every transaction in two accounts is known as DEAS
 One account is given debit the other account is given credit with equal amount.
 On any date the total of all debits must be equal to all credits because every debit has
a corresponding credit

Accounts under Double Entry Accounting System

Three different types of accounts are normally used by the entire business world for preparing
the financial statements. All the transactions we have to record under the three accounts;
personal, real and nominal accounts.
i. Personal Account: Accounts of all the natural human beings and artificial persons –
bank, supplier, or other organisations.
Rule: Debit the receiver credit the giver
ii. Real Account: all the properties or all the assets
Rule: Debit what comes in Credit what goes out

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 iii.Nominal Account: all expenses and losses, expenses and losses and incomes and gains
Rule: Debit all expenses and losses credit all incomes and gains

Session 1 SLO2
Groups Interested In Accounting Information / Users of Accounting Information
The basic objective of accounting is to provide information which is useful for persons and
groups inside and outside the organisation. There are several groups of people who are interested
in the accounting information relating to the business enterprise.
 Internal users – are those individuals or groups who are within the organisation, like
owners, management, employees and trade unions.
 External users – are those individuals or groups who are outside the organisation, like
creditors, banks and other lending institutions, present and potential investors,
Government, tax authorities, regulatory agencies and researchers.
Following are the users of accounting information:
 Shareholders: Shareholders as owners are interested in knowing the profitability of the
business transactions and the distribution of capital in the form of assets and liabilities. In
fact, accounting developed several centuries ago to supply information to those who had
invested their funds in business enterprise.
 Management: With the advent of joint stock company form of organization the gap
between ownership and management widened. In most cases the shareholders act merely
as renders of capital and the management of the company passes into the hands of
professional managers. The accounting disclosures greatly help them in knowing about
what has happened and what should be done to improve the profitability and financial
position of the enterprise.
 Potential Investors: An individual who is planning to make an investment in a business
would like to know about its profitability and financial position. An analysis of the
financial statements would help him in this respect.
 Creditors: As creditors have extended credit to the company, they are much worried
about the repaying capacity of the company. For this purpose they require its financial
statements, an analysis of which will tell about the solvency position of the company.
 Government: Any popular government has to keep a watch on big businesses regarding
the manner in which they build business empires without regard to the interests of the
community. Restricting monopolies is something that is common even in capitalist
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 countries. For this, it is necessary that proper accounts are made available to the
government. Also, accounting data are required for collection of sale-tax, income-tax,
excise duty etc.
 Employees: Like creditors, employees are interested in the financial statements in view
of various profit sharing and bonus schemes. Their interest may further increase when
they hold shares of the companies in which they are employed.
 Researchers: Researchers are interested in interpreting the financial statements of the
concern for a given objective.
 Citizens: Any citizen may be interested in the accounting records of business enterprises
including public utilities and government companies as a voter and tax payer.

Branches of Accounting
1. Financial Accounting – involves the preparation of financial statements for use of
outsiders to show them the manner in which operations of business have been conducted.
2. Management Accounting – is the application of professional information to assist the
top management in formation of policies and in planning.
3. Cost Accounting – relates to collection, classification and ascertainment of the cost of
production or job undertaken by the firm.

Specialised Accounting Fields

As in many other areas of human activity, a number of specialized fields in accounting
also have evolved besides financial accounting. Management accounting and cost accounting are
the result of rapid technological advances and accelerated economic growth. The most important
among them are explained below:
 Tax Accounting: Tax accounting covers the preparation of tax returns and the
consideration of the tax implications of proposed business transactions or alternative
courses of action. Accountants specializing in this branch of accounting are familiar with
the tax laws affecting their employer or clients and are up to date on administrative
regulations and court decisions on tax cases.
 International Accounting: This accounting is concerned with the special problems
associated with the international trade of multinational business organizations.
Accountants specializing in this area must be familiar with the influences that custom, law

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 and taxation of various countries bring to bear on international operations and accounting
principles.
 Social Responsibility Accounting: This branch is the newest field of accounting. It owes
its birth to increasing social awareness which has been particularly noticeable over the last
three decades or so. Social responsibility accounting is so called because it not only
measures the economic effects of business decisions but also their social effects, which
have previously been considered to be immeasurable. The management is being held
responsible not only for the efficient conduct of business as reflected by increased
profitability but also for what it contributes to social well-being and progress.
 Inflation Accounting: Inflation has now become a world-wide phenomenon. The
consequences of inflation are dire in case of developing and underdeveloped countries.
When financial statements or reports are based on historical costs, they would fail to
reflect the effect of changes in purchasing power or the financial position and profitability
of the firm. Thus, the utility of the accounting records, not taking care of price level
changes is seriously lost. This imposes a demand on the accountants for adjusting
financial accounting for inflation to know the real financial position and profitability of a
concern. It is a system of accounting which regularly records all items in financial
statements at their current values.
 Human Resources Accounting: Human resources accounting is yet another new field of
accounting which seeks to report and emphasize the importance of human resources in a
company’s earning process and total assets. It is based on the general agreement that the
only real long lasting asset which an organization possesses is the quality and caliber of
the people working in it. This system of accounting is concerned with, “the process of
identifying and measuring data about human resources and communicating this
information to interested parties”.

Process of Accounting:
INPUT PROCESS OUTPUT

Identifying,
Recording,
Business Classifying,
Information to
Transactions Summarising,
Analysing, users
(monetary value)
Interpreting,
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Communicating
 Session 2 SLO1:
Financial Reporting:
Financial Reporting involves the disclosure of financial information to the various stakeholders
about the financial performance and financial position of the organization over a specified period
of time. These stakeholders include – investors, creditors, public, debt providers, governments &
government agencies. In case of listed companies the frequency of financial reporting is
quarterly & annual.
Financial Reporting is usually considered as end product of Accounting. The typical components
of financial reporting are:
1. The financial statements – Balance Sheet, Profit & loss account, Cash flow
statement& Statement of changes in stock holder’s equity
2. The notes to financial statements
3. Quarterly & Annual reports (in case of listed companies)
4. Prospectus (In case of companies going for IPOs)
5. Management Discussion & Analysis (In case of public companies)
The Government and the Institute of Chartered Accounts of India (ICAI) have issued various
accounting standards & guidance notes which are applied for the purpose of financial reporting.
This ensures uniformity across various diversified industries when they prepare & present their
financial statements.

Objectives of Financial Reporting

According to International Accounting Standard Board (IASB), the objective of financial
reporting is “to provide information about the financial position, performance and changes in
financial position of an enterprise that is useful to a wide range of users in making economic
decisions.”
The following points sum up the objectives & purposes of financial reporting –
1. Providing information to management of an organization which is used for the purpose of
planning, analysis, benchmarking and decision making.
2. Providing information to investors, promoters, debt provider and creditors which is used
to enable them to male rational and prudent decisions regarding investment, credit etc.

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 3. Providing information to shareholders & public at large in case of listed companies about
various aspects of an organization.
4. Providing information about the economic resources of an organization, claims to those
resources (liabilities & owner’s equity) and how these resources and claims have
undergone change over a period of time.
5. Providing information as to how an organization is procuring & using various resources.
6. Providing information to various stakeholders regarding performance management of
an organization as to how diligently & ethically they are discharging their fiduciary
duties & responsibilities.
7. Providing information to the statutory auditors which in turn facilitates audit.
8. Enhancing social welfare by looking into the interest of employees, trade union &
Government.

Importance of Financial Reporting

The importance of financial reporting cannot be over emphasized. It is required by each and
every stakeholder for multiple reasons & purposes. The following points highlights why
financial reporting framework is important –
1. In helps and organization to comply with various statues and regulatory requirements.
The organizations are required to file financial statements to ROC, Government
Agencies. In case of listed companies, quarterly as well as annual results are required to
be filed to stock exchanges and published.
2. It facilitates statutory audit. The Statutory auditors are required to audit the financial
statements of an organization to express their opinion.
3. Financial Reports forms backbone for financial planning, analysis, bench marking and
decision making. These are used for above purposes by various stakeholders.
4. Financial reporting helps organizations to raise capital both domestic as well as overseas.
5. On the basis of financials, the public in large can analyze the performance of the
organization as well as of its management.
6. For the purpose of bidding, labor contract, government supplies etc., organizations are
required to furnish their financial reports & statements.
A sound & robust financial reporting system across industries promotes good competition and
also facilitates capital inflows. This in turn helps in economic development.

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 Session 2 SLO2:
Understanding IFRS
Foreign Direct Investments, Foreign Institutional Investors, Merger and Acquisition, Franchising
and Business Outsourcing are some example of international transaction in global business.
For the integrity of different county's business together in the world market it was necessary for
the business to adopt a common set of accounting standard, since accounting is the language of a
business.
Therefore in 1973, international professionals from different countries established the
International Accounting Standard Committee.
Main objective to this committee is to issue International Accounting Standards, at this present
time Ministry of Corporate Affairs notified 35 Accounting Standards.
In 2001 International Accounting Standard Committee are superseded as International
Accounting Standard Board.
Now the board issues the International Financial Reporting Standard formerly known as
International Accounting Standards. Accounting Standards were prepared for some benefits in
global market which are compelling.
The use of common set of accounting standards throughout the world provides an easy way of
comparability and transparency of financial information.
It also reduces the cost of preparing financial statements.
A constant use of accounting standards provide higher quality information which enables the
investors to make a better decision, indirectly fund will allocate in more efficient manner in the
market and the company can reduce its overall cost of capital.
Meaning of IFRS: “A single set of high quality, understandable and enforceable global
accounting standards adopted by the IASB.

Roadmap of Convergence of Indian Accounting Standards with IFRS

It is well known that companies all over the world have become more and more internationally
oriented during last few decades.
They create fusion, make investment, conduct trade and co-operate over country borders.
IFRS is becoming the global language of business with over 40% of the world having moved to
IFRS in the past few years.
By 2018, it is expected that all companies in major markets will be using IFRS.

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The globalization creates an increased need for communication in the terms of language,
awareness of culture differences and domestic customs.
Moreover the financial communication such as accounting and financial results is just as
important for business leaders and employees to master.
After issuing the revised roadmap for implementing Ind AS in January 2015, the Ministry of
Corporate Affairs (MCA) has come up with the phase wise adoption of Ind AS, India’s
Accounting Standards converged with IFRS.
India has chosen the path of IFRS convergence and not adoption. The MCA has issued a
notification dated 16 February 2015 announcing the Companies (Indian Accounting Standards)
Rules, 2015 for the applicability of Ind AS. A total of 39 Ind AS has been notified.

Applicability
The application of Ind AS is based on the listing status and net worth of a Company. Also these
standards will be applied to various threshold companies in phased out manner as given below. 
Phases Companies Date
1 Companies having Net worth of greater than or equal to INR 500 crore. 1 April 2016
2 Listed Companies and companies having Net worth of greater than or 1 April 2017
equal to INR 250 crore.
It is important to note that the Ind AS will also apply to subsidiaries, joint ventures,
associates and holding companies of the entities covered in various phases. Companies not
covered by the new Ind AS rules can voluntarily adopt Ind AS. Once adopted, they cannot
switch back. Insurances, banking and non- financial companies are not required to apply Ind
AS either voluntarily or mandatorily. Companies listed on SME exchange not required to
apply Ind AS.

Comparison between Ind AS and IFRS

India has chosen the path of IFRS conversion and not adoption. Therefore, there are few
differences between Ind AS and IFRS. These are known as carve outs.
Ind AS IFRS
Only one statement comprising of both profit There is an option to present other
and loss and other comprehensive income will comprehensive income under a separate
be presented. statement.
There is no option to present other
comprehensive income under a separate

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statement.
Allows presentation of expenses by nature This is policy election.
only. Presentation of expenses by function is
not allowed.
Earnings per share (EPS) are required to be EPS is not required in separate financial
presented for both standalone and consolidated statement if both separate and consolidated
financial statements. financial statements are presented.
The bargain purchase gain on business The same is recognised in profit and loss.
combination is to be recognised either in other
comprehensive action or capital reserve but not
profit and loss.
Investment property is to be accounted using Both cost and fair value options of accounting
only cost model with fair value disclosure. are available.

IFRS Important Standards

1. Inventory
2. CFS
3. Depreciation
4. Foreign Exchange

Session 3 SLO1

Accounting Standards
Accounting is the language of business. Accounting information has to be suitably recorded and
presented. GAAP – are the broad guidelines used to measure, record and report financial affairs
and activities of a business. It is required to assure some degree of uniformity and comparability
in the data received and relied on by the users. Every different country has its own GAAP -
Indian GAAP, US GAAP. Every country has devised its own GAAP because businesses,
business processes, sources of finance to the business, and methods of their utilization in the
business are different in each country.
Preparation of GAAP: In every country, there is an institute called as Institute of Chartered
Accountants of that country or Institute of Certified Public Accountants. In India, ICAI - Institute
of Chartered Accountants of India, is entrusted with the task of preparing the GAAP, ensuring
the proper implementation of the GAAP, and effecting changes if any from time to time.

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Accounting Concepts and Conventions
Concepts of Accounting: Assumptions
The major principles and concepts are:
1. Business Entity concept: This concept treats a business separate and distinct from those
individuals who own or manage it. Business transactions must be kept completely
separate from the private affairs of the owner. An organistion is considered a legal or
economic unit capable of generating income for itself.
2. Going Concern concept: Here, the assumption is that business will exist for the future
and transactions are recorded from this point of view. Business will exist indefinitely and
will not be dissolved or liquidated in the immediate future.
3. Realisation concept (or) Accrual concept: This concept is an accounting system which
recognizes revenues and expenses as they are earned or incurred, respectively, without
regard to the date of receipt or payment. Recognized in the period in which it is earned,
rather than the period in which it is collected in cash.
4. Money Measurement concept: Money is the medium of exchange. All transactions are
expressed in terms of money, since money is a basic unit of measurement. Ex: Rupee in
India, Yen in Japan and so on.
5. Cost concept: This concept states that all goods and services purchased should be
recorded at historical cost. Ex: If a building is purchased for Rs. 50 lakh, it should be
recorded in the books at Rs. 50 lakh only, even if the worth is more or less, or even if the
market value changes.
6. Dual Aspect concept: According this concept, each transaction has two aspects – the
debit aspect and the credit aspect. This must be reflected in accounting records in order to
maintain equilibrium between assets and liabilities of a business.
7. Accounting period concept (or) Periodicity concept: This concept makes it obligatory
to divide the life of a business concern into specific time intervals for periodic reporting.
Usually financial statements are prepared at yearly intervals called the accounting period,
which covers any conservative 12 month period.
8. Matching concept: It results from periodicity concept. It attempts to match the expenses
incurred in generating revenues with the revenues earned in order to determine the net
income. Every sacrifice of resource in a given period must be specifically identified with

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 a particular product or service and be recognized as an expense in the period in which the
product or service is sold or provided.
9. Objectivity concept: It requires the economic data as supplied by financial statements
should be based on verifiable evidence and should not be biased.
Conventions (Traditions) of Accounting
1. Convention of Consistency: This concept relates to the method of measurement in
accounting. Any method can be adopted, but consistently followed.
2. Convention of Full Disclosure: A good accounting practice should disclose all
significant information. Ex: Not only assets but also mode of valuation should be stated.
3. Convention of Conservatism (or) Prudence: Early recognition of unfavourable events.
The user must be given the most pessimistic view of firm’s position. Assets and profits
should not be overstated. “Recognise all losses and anticipate no gains”.
4. Convention of Materiality: An item is recorded only when it is considered to be useful
or important to the user of a financial statement. Insignificant transactions are not
recorded.
Session 3 SLO2
Accounting Process – 6 steps
1. Transaction
2. Journal
3. Ledger
4. Trial Balance
5. Profit & Loss Account
6. Balance Sheet
Some other additional Statements
 Profit and Loss Appropriation Account
 Fund Flow Statement
 Cash Flow Statement

Accounting Cycle

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I. Journal (or) Book of Original Entry: contains chronological record of transactions
from which posting is done to ledger.
 Purchase Book
 Sales Book
 Purchase Return Book
 Sales Return Book
 Bills Receivable Book
 Bills Payable Book
 Cash Book
 Journal Proper
II. Ledger (or) Book of Final Entry: is a book of main entry and it contains various
accounts such as, personal, real and nominal. It is where identical transactions related to
specific person or thing is entered.
III.Trial Balance: is the statement prepared to check the arithmetic accuracy of the
transactions recorded so far. It is statement which shows debit balances and credit
balances of all accounts in the ledger. Since every debit should have a corresponding
credit as per the rules of double entry system, the total of the debit and credit balances
should tally. Trial balance can be prepared on any date provided accounts are balanced. It
proves the arithmetic accuracy of the business transactions.

Trial Balance of _________ as on ________

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 Sl.No. Head of Account Balances
Debit Credit
1. Capital XXX
2. Purchases XXX
3. Purchases Returns XXX
4. Sales XXX
5. Sales Returns XXX
6. Expenses and Losses XXX
7. Incomes and Gains XXX
8. Assets XXX
9. Liabilities XXX
TOTAL XXX XXX

Session 4 SLO 1
Financial Statements: GAAP require that three reports be prepared for the accounting period
and as of the last day of the accounting period. It comprise of Income Statement, Balance Sheet
and Cash Flow Statement.
IV. Trading Account:
Trading means buying and selling. The trading account shows the result of buying and selling of
goods. It is prepared to ascertain the gross profit or gross loss.
Gross profit: It is the difference between the selling price and the cost price of the goods.
However, when the selling price is less than the cost of goods purchased, the result is gross loss.
Items on the debit side:
1. Opening stock: It is the stock on hand at the beginning of the year. The closing stock of
the previous accounting year is brought forward as opening stock of the current
accounting year. In case of new business, there will not be any opening stock.
2. Purchases: Purchases made during the year includes both cash and credit purchases of
goods.
3. Direct expenses: are expenses which are incurred from the stage of purchase to the stage
of making the goods in saleable condition. Some of the direct expenses are:
a. Wages: remuneration paid to workers.
b. Carriage inwards: means the transportation charges paid to bring the goods from
the place of purchase to the place of business.
c. Freight: means goods transported by ships, airplane or train.
d. Octroi duty: is the amount paid to bring the goods within the municipal limits.
e. Customs duty, dock dues, clearing charges, import duty, etc.: are expenses paid
to the government on the goods imported.
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 f. Other expenses: fuel, power, lighting charges, oil, greese, waste related to
production and packing expenses.
Items appearing on the credit side:
4. Sales: includes both cash and credit sales made during the year. Net sales = Total sales –
Sales returns
5. Closing stock: It is the value of goods which remain in the hands of the trader at the end
of the year. It does not appear in the trial balance.
Balancing: The difference between the sides of the trading account, indicates either Gross
profit or Gross Loss. The GP or GL is transferred to P&L A/c.
V. Profit & Loss Account
 Nominal Account
 Expenses decrease Capital and Income Increase Capital
 Income is shown on Credit Side and Expenses are shown on Debit Side of the
Account
 The Closing Balance is net profit or net loss
Items appearing on the debit side:
Those expenses which are chargeable to the normal activities of the business are recorded in the
debit side of profit and loss account. They are indirect expenses.
a. Office and administrative expenses: are expenses incurred for the functioning of an
office. Ex: Office salaries, rent, lighting, printing and stationary, postages, telephone
charges, etc.
b. Repairs & maintenance expenses: are expenses relating to the maintenance of assets.
Ex: Repairs and renewals, depreciation, etc.
c. Financial expenses: are expenses incurred on borrowings. Ex: Interest on loan.
d. Selling & Distribution expenses: are expenses relating to sales and distribution of
goods. Ex: Advertising, travelling expenses, salesman salary, commission paid to
salesman, discount allowed, repacking charges, etc.
Items appearing on the credit side:
a. Interest received on investments
b. Interest received on fixed deposits
c. Discount earned
d. Commission earned
e. Rent received
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Balancing: The difference between the two sides of profit and loss account indicates either net
profit or net loss.
Net profit – if the total on the credit side is more
Net loss – if the total on the debit side is more
The net profit or net loss is transferred to Capital account.

VI. Balance Sheet

It is a statement showing the financial position of the business. It displays the company’s
total assets, and how these assets are financed, through either debt or equity. It can also
sometimes be referred to as a statement of net worth, or a statement of financial position. It is
prepared by taking up all personal accounts and real accounts (assets and properties) together
with the net result obtained from P&L A/c. The balance sheet is key to both financial
modeling and accounting. The balance sheet is based on the fundamental equation: Assets =
Liabilities + Equity.
It is prepared in Two Ways. As such, the balance sheet is divided into two sides (or sections).
The left side of the balance sheet outlines all a company’s assets. On the right side, the
balance sheet outlines the company’s liabilities and shareholders’ equity. On either side, the
main line items are generally classified by liquidity. More liquid accounts like Inventory,
Cash, and Trades Payables are placed before illiquid accounts such as Plant, Property and
Equipment (PP&E) and Long-Term Debt. The assets and liabilities are also separated into
two categories: current asset/liabilities and non-current (long-term) assets/liabilities.
Classification of Assets and Liabilities:
Assets: Assets represent everything which a business owns and has money value.
It includes possessions and properties of the business. Assets are classified as follows:
a. Tangible assets: Assets which have physical existence are known as tangible assets.
They can be seen, touched and felt. Tangible assets are classified into:
i. Fixed assets: are assets which are permanent in nature having long period of life and
cannot be converted into cash in a short period. Ex: Plant & machinery, land & building,
furniture, etc.
ii. Current assets: are assets which can be converted into cash in the ordinary course of
business and are held for a short period. Are also known as floating assets. Ex: Cash in
hand, cash at bank, sundry debtors, etc.

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 b. Intangible assets: have no physical existence & cannot be seen or felt. They help to
generate revenue in future.
c. Fictitious assets: are unwritten off losses or non-recoupable expenses. They are really
not assets but are worthless items. Ex: Preliminary expenses.
Liabilities: is the amount which a business owes to others. Credit balances of personal and
real accounts together with the capital account are liabilities.
Liabilities are classified as:
a. Long term liabilities: are liabilities which are repayable after a long period of time. Ex:
Capital, Long term loans, etc.
b. Current liabilities: are those which are repayable within a year. Ex: Creditors for goods
purchased, short term loans, etc.
c. Contingent liabilities: is an anticipated liability which may or may not arise in future.
Ex: Liability arising for bills discounted.
Marshalling of Assets & Liabilities:
It refers to the order in which the various assets and liabilities are shown in the Balance
Sheet. The assets & liabilities can be shown either in the order of liquidity or in the order of
permanence.
a. Order of liquidity: Liquidity means convertibility into cash. Assets will be said to be
liquid if it can be converted into cash easily. They are placed at the top of the Balance
Sheet.
b. Order of Permanence: This is reverse of the above. Assets & liabilities are recorded in
the order of their life in the business concern.

Accounting Equation or Balance Sheet Equation:

Assets = Liabilities + Capital
(Or) Capital = Assets – Liabilities
This is because the liability to the owner, that is, capital, is always made up of the difference
between assets and liabilities.

Trading and Profit & Loss Account of XYZ Ltd. for the Year Ending on 31.12.2018
Particulars Amt. (Dr.) Particulars Amt.
(Cr.)

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To Opening stock XXX By Sales XXX
To Purchases XXX Less: Returns Inwards XXX XXX
Less: Return outwards XXX XXX By Closing Stock XXX
To Direct Expenses: By Gross Loss (transferred to XXX
To Wages XXX P&L A/c)
To Freight XXX
To Carriage Inwards XXX
To Clearing charges XXX
To Packing charges XXX
To Dock dues XXX
To Power (factory) XXX
To Octroi duty XXX
To Gross Profit c/d (transferred XXX
to P&L A/c)
To Gross Loss b/d By Gross Profit b/d XXX
To Indirect Expenses: By Other Incomes:
To Selling expenses: By Interest received XXX
Advertisement XXX By Discount XXX
Traveller’s salaries, expenses & XXX By Commission XXX
commission By Rent from tenants XXX
Bad debts XXX By Income from investments XXX
Godown rent XXX By Apprenticeship Premium XXX
Export expenses XXX By Interest on Debentures XXX
Carriage outwards XXX By Income from any other XXX
Bank charges XXX source
Agent’s commission XXX By Miscellaneous Revenue XXX
Upkeep of motor lorries XXX receipts
To Management expenses: By Net Loss transferred to XXX
Rent, rates & taxes XXX Capital A/c
Heating & Lighting XXX
Office salaries XXX
Printing & Stationary XXX
Postage & Telegrams XXX

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Telephone charges XXX
Legal expenses XXX
Audit fees XXX
Insurance XXX
General expenses XXX
To Depreciation XXX
To Repairs & Maintenance XXX
To Financial expenses:
Discount allowed XXX
Interest on capital XXX
Interest on loans XXX
To Extraordinary expenses: XXX
Loss by fire (not covered by XXX
insurance)
Cash defalcation XXX
To Net Profit transferred to XXX
Capital A/c
Total XXX Total XXX

Balance Sheet of XYZ Ltd. as on 31.12.2018

Liabilities & Capital Amt. Assets Amt.
Capital: Fixed Assets:
Add Net Profit Land & Building
(OR) Less: Net Loss XXX Plant & Machinery
Reserves & Surplus XXX Furniture & Fixtures
Long Term Liabilities XXX Investments
Current Liabilities: Currents Assets:
Bills Payable XXX Sundry Debtors
Sundry Creditors XXX Bills Receivable
Customer’s advances XXX Closing Stock
Short term loans XXX Accrued income
Bank Overdraft XXX Prepaid expenses
Outstanding expenses XXX Cash balance on hand
Income Tax Payable XXX Bank balances
19
 Short term investments
Intangible Assets:
Goodwill
Copyrights, Patents
Fictitious Assets:
Formation expenses
Underwriting commission
XXX XXX

Session 4 SLO2
VII. Cash Flow Statement
In 1994, International Accounting Standard Committee accepted this statement. In India Institute
of Chartered Accountants of India accepted this statement in 1997 and has become a mandatory
statement to be prepared by companies.
Profit and Loss Appropriation Account: it is prepared as a separate account, or as the
extended version of the profit and loss account. It shows how the profits earned are distributed.
Three parts, dividend to the shareholders, transfer of specific reserves such general reserves,
debenture redemption reserve, etc., balance profits will be passed on to the balance sheet and
added to the capital.

Profit & Loss Appropriation Account

Amount (Rs.) Amount (Rs.)
To Interim dividend paid XXX By balance b/d XXX
To General reserve XXX By Net profit XXX
To balance c/d (surplus XXX
carried to Balance sheet)
XXX XXX

Funds flow statement is a kind of a cash flow statement, but an enlarged version of the cash
flow statement. In the cash flow statement only those assets and liabilities which affect cash are
considered, but in fund flow statement, almost all the assets and liabilities are included, because
in the long run, everything all the liabilities and assets can be converted into cash. But it is not a
mandatory requirement.

Basic Ideas about Income and Expense

20
 Profit and loss account consists of two elements: one element is the inflows that result
from the sale of goods and services to customers which are called as revenues. The other element
reports the outflows that were made in order to generate those revenues; these are called as
expenses. Income is the amount by which revenues exceed expenses. The term ‘net income’ is
used to indicate the excess of all the revenues over all the expenses. The basic equation is:
Revenue – Expenses = Net Income
Income and Owner’s Equity:
The net income of an accounting period increases owner’s equity because it belongs to
the owner. To quote an example, goods costing rs.20,000 are sold on credit for rs.28,000. The
result is that stock is reduced by rs.20,000 and a new asset namely debtor for rs.28,000 is created
and the total assets increase by the difference of rs.8,000. Because of the dual aspect concept, we
know that the equity side of the balance sheet would also increase by rs.8,000 and the increase
would be in owner’s equity. This is because the profit on sale of goods belongs to the owner. It is
clear from the above example that income increases the owner’s equity.
Income Vs. Receipts:
Income of a period increases the owner’s equity but it need not result in increase in cash
balance. Loss of a period decreases owner’s equity but it need not result in decrease in cash
balance. Similarly, increase in cash balance need not result in increased income and owner’s
equity and decrease in cash balance need not denote loss and decrease in owner’s equity. All
these are due to the fact that income is not the same as cash receipt. The following examples
make clear the above point:
 when goods costing rs.20,000 are sold on credit for rs.28,000 it results in an income of
rs.8,000 but the cash balance does not increase.
 when goods costing rs.18,000 are sold on credit for rs.15,000 there is a loss of rs.3,000
but there is no corresponding decrease in cash.
 when a loan of rs.5,000 is borrowed the cash balance increases but there is no impact on
income.
 when a loan of rs.8,000 is repaid it decreases only the cash balance and not the income.
Expenses:
An expense is an item of cost applicable to an accounting period. It represents economic
resources consumed during the current period. When expenditure is incurred the cost involved is
either an asset or an expense. If the benefits of the expenditure relate to further periods, it is an
asset. If not, it is an expense of the current period. Over the entire life of an enterprise, most
21
expenditure becomes expenses. But according to accounting period concept, accounts are
prepared for each accounting period. Hence, we get the following four types of transactions
relating to expenditure and expenses:
Expenditures that are also Expenses: This is the simplest and most common type of
transaction to account for. If an item is acquired during the year, it is expenditure. If the item is
consumed in the same year, then the expenditure becomes expense. E.g. Raw materials
purchased are converted into saleable goods and are sold in the same year.
Assets that Become Expenses: When expenditures incurred result in benefits for the
future period they become assets. When such assets are used in subsequent years they become
expenses of the year in which they are used. For e.g. Inventory of finished goods are assets at the
end of a particular accounting year. When they are sold in the next accounting year they become
expenses.
Expenditures that are not Expenses: As already pointed, out when the benefits of the
expenditure relate to future periods they become assets and not expenses. This applies not only to
fixed assets but also to inventories which remain unsold at the end of the accounting year. For
e.g. The expenditure incurred on inventory remaining unsold is asset until it is sold out.
Expenses not yet paid: Some expenses would have been incurred in the accounting year
but payment for the same would not have been made within the accounting year. These are
called accrued expenses and are shown as liabilities at the year end.

Session 5 SLO1
Adjustments for Final Accounts
Sl.No. Item of Adjustment Treatment
Trading account P&L account Balance Sheet
1. Closing stock Shown on credit side - Shown on assets
side
2. Outstanding expenses Added to concerned - Shown on
(relating to Trading expenses on debit liabilities side
account, like wages) side
Outstanding expenses - Added to Shown on
(relating to P&L concerned liabilities side
account) expenses on
debit side

22
3. Prepaid expenses - Reduced from Shown on assets
concerned side
expenses on
debit side
4. Accrued Income - Added to Shown on assets
concerned side
income on credit
side
5. Income received in - Reduced from Shown on
advance concerned liabilities side
income on credit
side
6. Additional Bad debts as - Shown on debit Reduced from
per adjustments side debtors on assets
side
7. Provision for doubtful - Shown on debit Reduced from
debts of current year side debtors on assets
side
8. Provision on discount - Shown on debit Reduced from
on debtors of current side debtors on assets
year side
9. Provision for discount - Shown on credit Reduced from
on creditors side creditors on
liabilities side
10. Depreciation on fixed - Shown on debit Reduced from
assets side fixed assets
concerned on
assets side
11. Interest on capital - Shown on debit Added to Capital
side on liabilities side
12. Interest on drawings - Shown on credit Reduced from
side Capital on
liabilities
13. Abnormal loss of stock Amount of stock lost Actual loss – Amount due
- Shown on credit shown on debit from Insurance
side side Company -
23
 Shown on assets
side

Session 5 SLO 2: Problem 1: Ascertain Gross profit and Net profit from the following balances
extracted from books of Alfa Associates.
Particulars Amount (Rs.) Particulars Amount (Rs.)
Sales 1,60,000 Purchase returns 4,000
Purchases 91,300 Sales Returns 5,000
Wages 18,100 Salaries (office) 6,000
Rent – Factory 3,000 General Expenses 4,500
- Office 2,0000
Freight - Purchases 3,000 Discount from creditors 1,100
Sales 1500
Opening Stock 24,000 Discount to customers 1,800
Closing stock 22,100
Solution

Trading and Profit and Loss Account of Alpha Associates for the year ending ______

Debit Amt. Credit Amt. (Rs.)

(Rs.)
To Opening stock 24,000 By Sales 1,60,000 1,55,000
Less: Sales Returns 5,000
To Purchases 91,300 87,300 By Closing Stock 22,100
Less: Purchases returns 4,000
To Wages 18,100
To Rent – Factory 3,000
To Freight – Purchases 3,000
To Gross Profit b/d 41,700
1,77,100 1,77,100
To Rent - Office 20,000 By Gross Profit c/d 41700
To Freight - Sales 1,500 By Discount from creditors 1,100
To Salaries (office) 6,000
To General Expenses 4,500
To Discount to customers 1,800
To Net Profit b/d 9,000
42,800 42,800

Session 6 SLO 1 & SLO 2: Problem 2: The following balances are extracted from the books of
Kautilya & Co. on 31st Dec., 2018. You are required to prepare the Trading and Profit & Loss
Account and Balance Sheet as on that date:
Particulars Amount (Rs.) Particulars Amount (Rs.)
Stock in 1st Jan., 2018 500 Return outwards 250

24
Bills Receivable 2250 Trade Expenses 100
Purchases 19,500 Office Fixtures 500
Wages 1400 Cash in Hand 250
Insurance 550 Cash at Bank 2375
Sundry Debtors 15000 Rent & Taxes 550
Carriage Inwards 400 Carriage outward 725
Commission (Dr.) 400 Sales 25,000
Interest on Capital 350 Bills Payable 1500
Stationery 225 Creditors 9825
Return Inwards 650 Capital 8950
Commission (Cr.) 200
Closing stock was valued at Rs 12,500.

Solution
Trading and Profit & Loss Account of Kautilya & Co. for the year ending 31st Dec., 2018
Amount (Rs.) Amount (Rs.)
To Stock in 1st Jan., 2018 500 By Sales 25,000 24,350
Less: Return Inwards 650
To Purchases 19,500 19,250 By Closing stock 12,500
Less: Return outwards 250
To Wages 1,400
To Carriage Inwards 400
To Gross Profit 15,300
36,850 36,850
To Insurance 550 To Gross Profit 15,300
To Commission (Dr.) 400 To Commission (Cr.) 200
To Interest on Capital 350
To Stationery 225
To Trade Expenses 100
To Rent & Taxes 550
To Carriage outward 725
To Net Profit 12,600
15,500 15,500

Balance Sheet of Kautilya & Co. as on 31st Dec. 2018

Liabilities Amount (Rs.) Assets Amount (Rs.)
Capital 8950 Office Fixtures 500
Add: Net Profit 12,600 21,550
Bills Payable 1,500 Cash in Hand 250
Creditors 9,825 Cash at Bank 2,375
Sundry Debtors 15,000
Bills Receivable 2250
Closing stock 12,500
25
 32,875 32,875

Session 7 : SLO1 & SLO2: Problem 3:

From the following Trial Balance extracted from the books of Waterfalls Pvt. Ltd., prepare a
Trading and Profit and Loss Account for the year ended on 30th September, 2018 and a Balance
Sheet as on that date:
Debit Balances Rs. Debit Balances Rs.
Drawings 6,480 Sundry Debtors 37,800
Land and Buildings 25,000 Stock(1st October, 2017) 26,420
Plant and Machinery 14,270 Fire Insurance 490
Furniture and Fixtures 1,250 Cash at bank 13,000
Carriage Inwards 4,370 Cash in Hand 850
Wages 21,470 Credit Balances Rs.
Salaries 4,670 Capital Account 90,000
Sales Returns 1,760 Bad Debts Provisions (as on 1- 2,470
10-2017)
Bank Charges 140 Sales 91,230
Coal, Gas and Water 720 Discount Account 120
Rate and Taxes 840 Purchases Returns 8,460
Purchases 42,160 Sundry Creditors 12,170
Bills Receivable 1,270 Apprentice Premium 500
Trade Expenses 1,990
Adjustments:
 Charges depreciation on Land and Building account at 2.5%, on Plant and Machinery
Account at 10%, and on Furniture and Fixtures Account at 10%.
 Make a Provision of 5% on Sundry debtors for Doubtful Debts.
 Carry forward the unexpired amounts for Fire Insurance Rs. 125, Rates and Taxes Rs.
240 and Apprentice Premium Rs. 400.
 Charges 5% interest on Capital and interest on Drawings is Rs. 300.
 The value of stock as on 30th September, 2018, was Rs. 29,390. (204950).
Solution:

Trading & Profit and Loss Account of Waterfalls Pvt. Ltd. for the year ended 30th Sep.
2018

Particulars Amt. Particulars Amt. (Rs.)

(Rs.)
To Stock (1st October, 2017) 26,420 By Sales 91,230 89,470
Less: Sales Returns 1,760
To Purchases 42,160 33,700 By Closing stock 29,390

26
Less: Purchases Returns 8,460
To Carriage Inwards 4,370
To Wages 21,470
To Coal, Gas and Water 720
To Gross Profit 32,180
1,18,860 1,18,860
To Salaries 4,670 By Gross Profit 32,180
To Bank Charges 140 By Discount Account 120
To Rate and Taxes 840 By Apprentice Premium 500
Less: Unexpired Rates 240 600 Less: Unexpired 400 100
& Taxes
To Trade Expenses 1,990 By Bad Debts Provisions (as on 2,470
1-10-2017)
To Fire Insurance 490 By Interest on Drawings 300
Less: Unexpired Fire 125 365
Insurance
To interest on capital (90,000 X 4,500
5/100)
To Bad debts Provision 1,890
(37,800 X 5/100)
To Depreciation:
Land and Building @ 2.5% 625
Plant & Machinery @ 10% 1,427
Furniture & Fixtures @ 10% 125 2,177
To Net Profit 18,838
35,170 35,170

Balance Sheet of Waterfalls Pvt. Ltd. as on 30th Sep. 2018

Liabilities Amt. Assets Amt. (Rs.)

(Rs.)
Capital 90,000 Land & Buildings 25,000
Add: Net Profit 18,838 Less: Depreciation 625 24,375
1,08,838 Plant & Machinery 14,270
Add: Interest on Capital 4,500 Less: Depreciation 1,427 12,843
1,13,338 Furniture and Fixtures 1,250
Less: Drawings (6,480) Less: Depreciation 125 1,125
Less: Int. on Drawings (300) 1,06,558
Sundry Creditors 12,170 Bills Receivable 1,270
Unexpired Apprentice Premium 400 Sundry Debtors 37,800
27
 Less: Bad debts Provision 1,890 35,910
Closing stock 29,390
Cash at bank 13,000
Cash in Hand 850
Unexpired Fire Insurance 125
Unexpired Rates & Taxes 240
1,19,128 1,19,128

Session 8 SLO1: Corporate Balance Sheet Format under Schedule VI – Part I

The following is the horizontal form of a company’s balance sheet.
Balance Sheet of _________ as at _________
Liabilities Amt. Assets Amt.
(Rs.) (Rs.)
Share Capital: Fixed Assets:
Authorized __ shares of Rs. __ each XXX Goodwill XXX
Issued: Land & Buildings XXX
Subscribed: Plant & Machinery XXX
Paid up: Furniture & Fittings XXX
Less: Calls in arrears Leaseholds XXX
Add: Forfeited shares Patents, Trade Marks & Design XXX
Preference shares __ of Rs. ___each XXX Livestock XXX
Reserves and Surplus: Vehicles XXX
Capital Reserves XXX Investments:
Genaral Reserve XXX Investments in government XXX
Share Premium Account XXX securities
Other Reserves XXX Investments in shares, bonds or XXX
P&L A/c (Surplus balance) XXX debentures
Secured Loans: Immovable properties XXX
Debentures XXX Current Assets, Loans and
Loans from banks XXX Advances:
Unsecured Loans: A. Current Assets:
Fixed deposits XXX Interest accrued on investment XXX
Loans & Advances from subsidiaries XXX Stores, spare parts, Loose tools XXX
Short term loans & advances from banks & XXX Stock XXX
others Work-in-progress XXX

28
Current Liabilities & Provisions: Sundry Debtors XXX
A. Current Liabilities Bills Receivable XXX
Sundry Creditors XXX Cash on hand XXX
Bills Payable XXX Bank balances XXX
Outstanding expenses XXX B. Loans and Advances:
Unclaimed dividends XXX Advances & loans to subsidiaries XXX
Bank Overdraft XXX Prepaid expenses XXX
B. Provisions Advance payment of tax XXX
Provision for taxation XXX Miscellaneous Expenditure:
Proposed Dividends XXX Preliminary expenses XXX
For contingencies XXX Profit and Loss A/c (debit XXX
For PF, insurance pension & staff benefit XXX balance) after deduction of
scheme reserves
XXX XXX

The following is the vertical form of a company’s balance sheet.

Balance Sheet of _________ as at _________
Particulars Figures at the end of Figures at the end of
the current year the previous year
I. Sources of Funds:
(1) Shareholder’s Funds:
(a) Capital
(b) Reserves & Surplus
(2) Loan Funds:
(a) Secured Loans
(b) Unsecured Loans
Total
II. Application of Funds:
(1) Fixed Assets:
(a) Gross block
(b) Net depreciation
(c) Net block
(d) Capital work-in-progress
(2) Investments

29
 (3) Current Assets, Loans and
Advances:
(a) Inventories
(b) Sundry Debtors
(c) Cash & bank balances
(d) Other current assets
(e) Loans & Advances
Less: Current Liabilities & Provisions:
(a) Liabilities (Sundry Creditors, Bills
Payable, Bank Overdraft, Outstanding
expenses, etc.)
(b) Provisions
Net current assets
(4) Miscellaneous expenditure:
Profit & Loss A/c
Total

Session 8 SLO2: Adjustments & Treatment

1. Calls in arrear:
 generally appears in trial balance.
 It represents the amount not paid by shareholders on the calls made on them by
the company.
 It is shown on Balance Sheet - Liability side – by deducting the amount from the
called up amount.
 If it appears in adjustment, then trial balance shows paid-up capital.
2. Unclaimed dividend:
 It appears on credit side of trial balance.
 It represents the dividend not collected by the shareholders.
 It is shown on Balance sheet – liability side – under current liabilities.
3. Interim dividend:
It always appears in trial balance.

30
 It represents dividend paid by the company before preparation of final a/c.
It is an appropriation of profit and is shown on the debit side of P&L Appropriation A/c.
4. Final dividend appearing in trial balance: It is shown on debit side of P&L
Appropriation A/c.
5. Dividend for previous year final dividend appearing in the trial balance: It is shown
debit side of P&L Appropriation A/c.
6. Proposed Dividend:
It is generally given under adjustments.
It is shown on debit side of P&L Appropriation A/c and on Balance Sheet – liability side
– under “Provision”.
7. Dividend received:
 It is an income of the company on the investments made by it in the shares of
some other company.
 It is shown on credit side of trial balance.
 It must be grossed (TDS) – increase dividend and show on the asset side of the
balance sheet.
8. Interest received:
It appears on the credit side of the trial balance.
It must be grossed – if 10% interest, then (100/90 X Interest received)
9. Interest paid on money borrowed for construction:
It is a capital expenditure and is capitalized by adding to cost of the asset.
So long as it is not adjusted, it is shown in balance sheet – asset side under
“miscellaneous expenditure”.
10. Interest paid on debenture:
 It is paid after deducting income tax on it at maximum rate.
 The grossed figure is shown on debit side of P&L A/c and the amount by which it
is increased is shown on the balance sheet – liability side under “Tax Payable”.
11. Discount and cost of issue of debentures:
 It includes discount, commission and other expenses on issue of debentures.
 It appears on asset side of balance sheet under “miscellaneous expenditure”.
 It is written off atleast before the life of the debentures.
12. Forfeited shares A/c:

31
  It appears on the credit side of the trial balance.
 It is shown on balance sheet – liability side by adding to paid-up capital.
13. Share Premium A/c:
 It is shown on liability side of balance sheet under “Reserves and Surplus”.
14. Income Tax limit of depreciation:
 Only the depreciation allowable by IT rules is deductible from profit.
15. Tax adjustments:
i. TDS – appears on debit side of trial balance. Added to IT payable.
ii. Advance payment of tax – appears on debit side of trial balance and it is a
prepaid item. It is adjusted to IT payable.
iii. Income Tax: It is adjusted to IT payable.
iv. Provision for taxation: It is debited to P&L A/c and shown in balance sheet
under “Current Liabilities & Provisions”.

Session 9 SLO1 & SLO2: Problem 4: The following is the Trial Balance of Mamta Fashions
Ltd. as on 31st March, 2016.
Sl.No. Head of Account Amount (Dr.) Amount (Cr.)
1. Premises 3,60,800
2. Plant & Machinery 4,95,000
3. Opening Inventory 1,12,500
4. Debtors 1,06,050
5. Land 87,500
6. Cash in Hand 4,725
7. Current Account 45,500
8. Bills Receivables 58,875
9. Purchases 27,00,000
10. Preliminary expenses 7,500
11. Wages 86,970
12. General expenses 10,252
13. Salaries 90,338
14. Bad Debts 3,165
15. Interest on term loan 27,000
16. Equity share capital 3,00,000
17. 10% Preference Share Capital 1,00,000
18. Secured Loan @ 12% p.a. 4,50,000
19. P&l A/C Balance as on 1.4.2015 39,375
20. Bills Payables 55,500
21. Creditors 83,000
22. Sales 31,20,000
23. General Reserves as on 1.4.2015 37,500
32
24. Central Sales tax Payable 10,800
Total 4,196,175 4,19,6175
Further Information:
1. Authorized Share Capital of the company is as under:
1,00,000 equity shares of Rs. 10 each
1000 Preference Shares of Rs. 100 each
2. Issued Share capital of the company is as under:
30,000 equity Shares
1,000 Preference Shares
3. Depreciation is to be provided for @10% on Premises and 14% on Plant & Machinery.
4. 20% Preliminary expenses are to be Written off.
5. Interest on Term loan is to be provided for six months
6. Bills receivable Rs 25,000 were dishonored, Effect was not carried out.
7. Doubtful Debts are to be provided for Rs 3,000
8. Value of Inventory on 31.3.2016 is 1,35,000
9. Income Tax is to be provided for @ 35%
10. The Board of Directors recommends dividends on Preference Shares and a dividend of
12% on equity shares after transferring 5% of Net profit to general reserves.
Required:
Prepare the following Financial Statements of the Concern:
P&L account for the year ending on 31.3.2016
P&L Appropriation Account for the year ended on 31.3.2016
Balance Sheet as on 31.3.2016

Session 10 SLO1 & SLO2: Problem 5: The following is the trial balance of Sanjay Industries
Ltd. as on 31st March, 2016.
Head of Accounts Dr.(Rs) Cr. (Rs)
Stock, 1st April, 2015 6,75,000
Sales 30,60,000
Wages 2,70,000
Share Capital (Authorized Capital 2,00,000 shares of Rs 9,00,000
10 each)
Discount 27,000
Purchases 22,05,000
Carriage inwards 8550
Purchase returns 90,000
33
Patents & trade marks 43,200
Salaries 67,500
Bills receivable 45,000
Sundry expenses 63,450
Bills payable 63,000
Rent 36,000
Debtors & Creditors 2,47,500 1,57,500
Plant & Machinery 2,61,000
Furniture and fittings 1,53,000
Cash at bank 4,15,800
General reserve 1,39,500
P & L 31st March 2015 54000
Total 44,91,000 44,91,000
Further Information:
1. Outstanding rent amounting to Rs 7,200 while outstanding salaries Rs 8100 are at the end of
the year. 2. Make a provision for doubtful debts amounting to Rs 4,590
3. Stock on 31st March 2016 was valued at Rs. 7,92,000
4. Depreciate Plant & Machinery @ 14% and furniture & fittings @ 18%
5. Amortize patents and trademarks @ 5%
6. Provide for managerial remuneration @ 10% of the net profit after tax
7. Make a provision for income tax @ 35%
8. The Board of Directors proposes a dividend @ 10% for the year ended on 31st March 2016
after transfer to General Reserve @ 5% of the profit after tax.
Required: Prepare the Profit and Loss account and Profit and Loss Appropriation account for
the company and Balance Sheet on 31st March, 2016.

Practice Problems
Problem 6: The following balances are extracted from the books of Alfa Corporation as on 31st
December, 2017:
Debit Balances Rs. Debit Balances Rs.
Cash in Hand 540 Plant & Machinery 7,500
Cash at Bank 2,630 Salaries 15,000
Purchases 40,675 General Expenses 3,000
Returns Inwards 680 Insurance 600
Wages 8,480 Sundry Debtors 14,500
Fuel and Power 4,730 Credit Balances Rs.
Carriage on Sales 3,200 Sales 98,780
Carriage on Purchases 2,040 Return Outwards 500
Stock (1 st January, 2012) 5,760 Capital 56,755
Buildings 32,000 Sundry Creditors 6,300
34
Freehold Land 10,000 Rent 9,000
Machinery 20,000
Taking into account the following adjustments prepare the P&L account and balance sheet as on
31st December, 2017.
 Stock on hand on 31st December, 2017 is Rs. 6,800
 Machinery is to be depreciated at the rate of 10% and plant at the rate of 20%
 Salaries for the month of December, 2017 amounting to Rs. 1,500 were unpaid
 Insurance includes a premium of Rs. 170 on a policy expiring on 30th June. 2018
 Bad debts are Rs. 725
 Rent Receivable Rs. 1,000
Solution:
Trading & Profit and Loss Account of Alfa Corporation for the year ended 30th Sep. 2018

Particulars Amt. Particulars Amt. (Rs.)

(Rs.)
To Stock (1st January, 2012) 5,760 By Sales 98,780 98,100
Less: Returns Inwards 680
To Purchases 40,675 By Closing Stock 6,800
Less: Return Outwards 500 40,175
To Wages 8,480
To Fuel and Power 4,730
To Carriage on Purchases 2,040
To Gross Profit 43,715
1,04,900 1,04,900
To Carriage on Sales 3,200 By Gross Profit 43,715
To Salaries 15,000 By Rent 9,000 10,000
Add: Unpaid salaries 1,500 16,500 Add: Rent Receivable 1,000
To General Expenses 3,000
To Insurance 600
Less: Unexpired Insurance 170 430
To Depreciation
on Machinery @ 10% on 20,000 2,000
Plant @ 20% on 7,500 1,500

To Bad debts 725

To Net Profit 26,360
53,715 53,715

Balance Sheet of Alfa Corporation as on 30th Sep. 2018

35
 Liabilities Amt. Assets Amt. (Rs.)
(Rs.)
Capital 56,755 Buildings 32,000
Freehold Land 10,000
Add: Net Profit 26,360 83,115
Machinery 20,000 18,000
Sundry Creditors 6,300
Less: Dep 2,000
Unpaid salaries 1,500 Plant & Machinery 7,500 6,000
Less: Dep 1,500
Cash in Hand 540
Cash at Bank 2,630
Sundry Debtors 14,500 13,775
Less: Bad debts 725
Closing Stock 6,800
Unexpired Insurance 170
Rent Receivable 1,000
90,915 90,915

Session 11: SLO 1 & SLO 2:

CASE STUDY: WIPRO
Model Balance Sheet of WIPRO Ltd.,
Consolidated Balance Sheet of Wipro ----------- in Rs. Cr. ---------
Mar 18 Mar 17 Mar 16
12 mths 12 mths 12 mths
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 904.80 486.10 494.10
Total Share Capital 904.80 486.10 494.10
Reserves and Surplus 47,021.50 51,184.10 45,650.70
Total Reserves and Surplus 47,021.50 51,184.10 45,650.70
Total Shareholders’ Funds 47,926.30 51,670.20 46,144.80
Minority Interest 241.00 239.10 221.20
NON-CURRENT LIABILITIES
Long Term Borrowings 4,526.80 1,961.10 1,736.10
Deferred Tax Liabilities [Net] 302.50 657.80 507.10
Other Long Term Liabilities 1,166.60 1,081.20 1,095.70
Long Term Provisions 179.40 424.10 463.20
Total Non-Current Liabilities 6,175.30 4,124.20 3,802.10
CURRENT LIABILITIES
Short Term Borrowings 7,959.80 11,674.10 10,264.80
Trade Payables 5,120.30 4,867.30 4,902.10
36
 Other Current Liabilities 7,300.30 5,652.80 5,973.10
Short Term Provisions 970.30 754.30 711.10
Total Current Liabilities 21,350.70 22,948.50 21,851.10
Total Capital And Liabilities 75,693.30 78,982.00 72,019.20
ASSETS
NON-CURRENT ASSETS
Tangible Assets 4,910.80 6,066.70 5,855.60
Intangible Assets 1,811.30 1,592.20 1,584.10
Capital Work-In-Progress 1,377.70 737.70 380.60
Fixed Assets 8,099.80 8,396.60 7,820.30
Non-Current Investments 887.40 710.30 490.70
Deferred Tax Assets [Net] 690.80 309.80 428.80
Long Term Loans And Advances 0.00 0.00 0.00
Other Non-Current Assets 3,995.10 3,447.90 3,157.50
Total Non-Current Assets 25,077.70 25,092.20 21,736.70
CURRENT ASSETS
Current Investments 24,909.40 29,203.00 20,424.40
Inventories 337.00 391.50 539.00
Trade Receivables 10,099.00 9,484.60 9,961.40
Cash And Cash Equivalents 4,492.50 5,271.00 9,904.90
Short Term Loans And Advances 0.00 0.00 0.00
Other Current Assets 10,777.70 9,539.70 9,452.80
Total Current Assets 50,615.60 53,889.80 50,282.50
Total Assets 75,693.30 78,982.00 72,019.20

OTHER ADDITIONAL INFORMATION

CONTINGENT LIABILITIES, COMMITMENTS
Contingent Liabilities 21,675.70 15,659.90 9,454.80
BONUS DETAILS
Bonus Equity Share Capital 885.67 475.82 475.82
NON-CURRENT INVESTMENTS
Non-Current Investments Unquoted Book Value 766.80 710.30 490.70
CURRENT INVESTMENTS
Current Investments Quoted Market Value 22,575.10 22,675.00 1,167.20
Current Investments Unquoted Book Value 2,334.30 6,528.00 12,139.80

Model P&L Account of Wipro Ltd.

Standalone Profit & Loss --------- in Rs. Cr. --------

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account Mar 18 Mar 17 Mar 16
 
12 mths 12 mths 12 mths
 
INCOME
Revenue From Operations 44,710.0
45,639.60 44,680.80
[Gross] 0
Less: Excise/Service Tax/Other
0.00 0.00 0.00
Levies
44,710.0
Revenue From Operations [Net] 45,639.60 44,680.80
0
Other Operating Revenues 0.00 408.20 0.00
44,710.0
Total Operating Revenues 46,047.80 44,680.80
0
Other Income 2,479.60 2,645.90 2,710.60
47,189.6
Total Revenue 48,693.70 47,391.40
0
EXPENSES
Cost Of Materials Consumed 0.00 0.00 0.20
Purchase Of Stock-In Trade 1,469.60 2,186.90 2,656.00
Changes In Inventories Of FG,WIP
57.70 164.00 -53.10
And Stock-In Trade
21,756.2
Employee Benefit Expenses 21,854.40 21,267.10
0
Finance Costs 384.30 468.00 549.90
Depreciation and Amortisation
1,014.80 1,047.70 875.40
Expenses
12,472.7
Other Expenses 12,285.60 11,501.70
0
37,155.3
Total Expenses 38,006.60 36,797.20
0
  Mar 18 Mar 17 Mar 16
  12 mths 12 mths 12 mths
Profit/Loss Before Exceptional, 10,034.3
10,687.10 10,594.20
Extraordinary Items And Tax 0
10,034.3
Profit/Loss Before Tax 10,687.10 10,594.20
0

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 Tax Expenses-Continued Operations
Current Tax 2,434.50 2,430.40 2,452.30
Deferred Tax -123.00 95.00 -58.60
Tax For Earlier Years 0.00 0.00 0.00
Total Tax Expenses 2,311.50 2,525.40 2,393.70
Profit/Loss After Tax And
7,722.80 8,161.70 8,200.50
Before ExtraOrdinary Items
Profit/Loss From Continuing
7,722.80 8,161.70 8,200.50
Operations
Profit/Loss For The Period 7,722.80 8,161.70 8,200.50
  Mar 18 Mar 17 Mar 16
  12 mths 12 mths 12 mths
OTHER ADDITIONAL INFORMATION
EARNINGS PER SHARE
Basic EPS (Rs.) 16.26 16.80 33.38
Diluted EPS (Rs.) 16.23 16.75 33.31
VALUE OF IMPORTED AND
INDIGENIOUS RAW MATERIALS
Imported Raw Materials 0.00 0.00 0.00
Indigenous Raw Materials 0.00 0.00 0.00
STORES, SPARES AND LOOSE TOOLS
DIVIDEND AND DIVIDEND
PERCENTAGE
Equity Share Dividend 452.50 729.10 3,567.20
Tax On Dividend 92.10 148.50 0.00
Equity Dividend Rate (%) 50.00 150.00 300.00

Model Cash Flow Statement of Wipro Ltd.

Cash Flow ----------- in Rs. Cr. ---------
Mar 18 Mar 17 Mar 16
12 mths 12 mths 12 mths
Net Profit/Loss Before
7,722.80 8,161.70 8,200.50
Extraordinary Items And Tax
Net CashFlow From Operating
6,470.90 7,370.70 6,686.70
Activities
Net Cash Used In Investing Activities 5,002.30 -7,890.80 -9,805.00
Net Cash Used From Financing -12,918.40 -4,367.60 -3,489.70

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Activities
Foreign Exchange Gains / Losses 5.20 -93.20 31.30
Adjustments on Amalgamation /
0.00 0.00 0.00
Merger / Demerger / Others
Net Inc/Dec In Cash And Cash
-1,440.00 -4,980.90 -6,576.70
Equivalents
Cash And Cash Equivalents Begin of
3,362.20 8,343.10 14,919.80
Year
Cash And Cash Equivalents End Of
1,922.20 3,362.20 8,343.10
Year

40