Adam's Learning Centre, Lahore: Interpretation of Financial Statements
Adam's Learning Centre, Lahore: Interpretation of Financial Statements
Adam's Learning Centre, Lahore: Interpretation of Financial Statements
Q.17 (CSS – 2016, Paper # 1, Part – II, Section – A, Q. # 4 (b) (20 Marks)
Rabika Limited has the following balance sheet and income statement for 2015. (in thousands rupees)
Balance Sheet
Assets Rupees Liabilities Rupees
Cash 400 Accounts Payable 320
Accounts Receivable 1,300 Accruals 260
Inventories 2,100 Short term Loans 1,100
Current Assets 3800 Current Liabilities 1,680
Net Fixed Assets 3,320 Long Term Debt 2,000
Share Holder’s equity 3,440
Total Assets 7,120 Total Liabilities & Equity 7,120
Income Statement
Accounts Rupees
Net Sales (All Credit) 12,680
Cost of Goods Sold * 8,930 *
Gross Profit 3,750
Selling, General & Admn. Expenses 2,230
Interest Expense 460
Profit Before Tax 1,060
Taxes 390
Profit after Tax 670
* Includes depreciation of Rs. 480
On the basis of this information, compute the following:
Current ratio
Acid test ratio
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CSS Accountancy & Auditing Interpretation of Financial Statements
Average collection period
Inventory turnover ratio
Debt to net worth ratio
Gross profit margin
Net profit margin
Rate of return on common stock equity
The following financial data were taken from the annual financial statements of Smith Corporation:
The Income Statement of the Abdul Rehman & Co for the year on December 31 (for each year 2015 & 2016) is given as under:
2016 2015
Sales Rs. 900,000 Rs. 800,000
Cost of goods sold Beginning inventory 43,000 40,000
Purchases 637,000 483,000
Goods available for sale 680,000 523,000
Ending inventory 70,000 43,000
Cost of goods sold 610,000 480,000
Gross margin 290,000 320,000
Operating expenses 248,000 280,000
Income before taxes 42,000 40,000
Income taxes 17,000 18,000
Net income 25,000 22,000
Plus: Retained earnings, beginning balance 137,000 130,000
Less: Dividends0 15,000
Retained earnings, ending balance 162,000 137,000
The Balance sheet of the Company as on December 31 for each year is given as under:
Assets 2015 2016
Cash Rs. 20,000 Rs.17,000
Marketable securities 20,000 22,000
Notes receivable 4,000 3,000
Accounts receivable 50,000 56,000
Merchandise inventory 70,000 43,000
Prepaid expenses 4,000 4,000
Property, plant & equipment (net) 340,000 310,000
Total assets 508,000 455,000
Liabilities and Stockholders’ Equity
Accounts payable 40,000 38,000
Q.20 (CSS – 2020, Paper # 1, Part – II, Section – I, Q. # 3(A) (10 Marks)
Industry A has three companies whose income statements and balance sheets are summarized below.
Company X Company Y Company Z
Sales Rs. 500,000 (d ) (g)
Net income Rs. 25,000 Rs.30,000 (h)
Total assets Rs. 100,000 (e) Rs.250,000
Total asset turnover (a) (f) 0.4
Profit margin (b) 0.4% 5%
Return on total assets (ROA) (c) 2% (i)
First supply the missing data in the table above. Then comment on the relative performance of
each company.
Q.20 (CSS – 2020, Paper # 1, Part – II, Section – I, Q # 3(A) (10 Marks)
The Rivers Company reports the following data relative to accounts receivable:
20X8 20X9
Average accounts receivable Rs. 400,000 Rs. 416,000
Net credit sales Rs. 2,600,000 Rs. 3,100,000
The terms of sale are net 30 days.
(a) Compute the accounts receivable turn over and the collection period, and
(b) Evaluate the results.