Financial Reporting

& Analysis

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Financial Reporting,Statement and Analysis

STUDY MATERIAL-MBA202

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 Financial Reporting, Statement and Analysis
MBA202

Course Objective: To familiarize students with the procedures of preparation of financial

statements, understanding corporate financial statements, their analysis and interpretation, role of
Ind AS in accounting discipline, and the concept of financial analysis and wealth creation

Course Outcomes

CO1 -To understand basic accounting concepts complying GAAP and their relevance in
business decisions

CO2 -To employ critical thinking skills to analyse financial data in preparing various financial
statements as per accounting standards
CO3- To effectively define the needs of the various users of accounting data and demonstrate
the ability to communicate such data effectively, as well as the ability to provide knowledgeable
recommendations

CO4-To understand annual report of companies and analyse the financial statements from
different perspectives of different stakeholders using ratio analysis.

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 Bloom's TaxOnomy
Produce new or original work
create Desien, assembie, constuct, conjecture, develp, formulate, autho, investigate

Justify a stand or decision

evaluate appraise. argue. defend. judge.select.,sugport. value. critique, weigh

Draw connections among ideas

ditterentiate, oganize, velate. compare, contrast distinguish. examine.
analyze experiment, question, tes

Use information in new situations

execute, implement, sotve, use, demonstrate, interpret operate,
apply schedule, sketch

Explain ideas or concepts

understand døssify, desaribe iscuss, explain, identiy, locate, recagnize.
report, select, translate

Recall facts and basicooncepts

remember define, duplicate, list, memorize. repea, state

This study material is only for use of IEM & UEM students.
 1. Company M has a current assets amounting Rs, 10, 00,000 and current liabilities
amounting to Rs. 9, 00,000 and thus, working capital of Rs. I, 00,000. Company N's
working capital is also measured at Rs. 1,00,000, which is constituted of current assets of
Rs. 2,00,000 and current liabilities of Rs. 1,00,000. Can we say that both the companies
have equally comfortable liquidity position? (Marks 5, BL:5, Evaluate)

Hint: Relative working capital position

2. How do you analyze the financial health of the companies as given in the following
Balance Sheet Structure? (Marks 5, BL:4, Analyze)
(Amount in Rs. Crore)
Particular HUL Infosys Suzlon
ASSETS
Total Assets 14,751 79.885 14.226
EQUITY AND LIABILITIES
Equity (Owner'sclaim) 6,490 68,017 1,022
Liabilities (Outsider's claim) 8,261 11,868 13,204
Total 14,751 79,885 14,226

3. S info Tech Limited (SIL) acquired K info Tech Limited (KIL), which is a five year old
company, to build its capabilities in artificial intelligence. It paid Rs. 100 crore towards
purchase consideration. The fair value of net assets is Rs. 60 crore.

Should SIL recognize goodwill? If it recognizes goodwill, at what value the goodwill
should be measured? (Marks 5, BL:4, Analyze)

Note: Recognition of goodwill from the transaction involving business combination

4. N Infrastructure Limited (NIL)acquired P Builders Limited (PBL), which is in the real

estate business and known for its capabilities of constructing high-quality green office
spaces. After the death of Dr. Rakesh, the promoter of PBL, his only son, Rajesh, who is
settled in the USA, decided to sell the business immediately. Without scouting for a

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 buyer, Rajesh approached NL to buy the business. NIL agrced to acquire PBL due to its
technological capabilities. NIL paid Rs. l00crores towards purchase consideration. The
fair value of the nct assets (fair value of assets minus fair value of liabilities) is Rs. 120
Crore. Should NIL recognize goodwill? (Marks 5, BL:4, Analyze)

S. Nirvana Limited (NL) is a manufacturer of ayurvedic medicines. It sell its medicines

through dealers located across India. It gives three months credit to its dealers. Most
dealers pay well in time, but sometimes, dealers delay payment. However, they invariably
pay within six months from the date of invoice. Dealers use their own transport to collect
the medicines from the factory gate. When should NL record the sale? (Marks 5, BL:4,
Analyze)

Hint: Revenue recognition is an aspect of accrual accounting that stipulates when and how
businesses "recognize" or record their revenue. The principle requires that businesses recognize
revenue when it's earned (accrual accounting) rather than when payment is received (cash
accounting)

6. The statement of profitand Loss of Delhi Ltd. for the year 2017 is presented as follows:

Amount

(Rs'000)
Sales 5,000
Less: Material Consumed 1,000

Manufacturing expenses 2,000

Administration and selling expenses 750

Depreciation 250
Amortization of: Patent 250

Loss on sale of equipment 50 4300

Operating profit 700

 Add: Dividend received 100
800

Less: lncome tax 200

Net profit 600

How doyou get fund from theoperation for the year 2017.
(Marks 10, BL:4, Analyze)
Hint: Concept of cash flow from operating activities

7. Hemant is a qualified CA who has carlier worked in the auditing, taxation and
consultancy side of a reputable professional accounting fim. Hemant started a
consultancy and accounting fin with one of friend, Ranbir , MBA in Finance, a sole
proprietorship called Hemant & Co which provides accounting and auditing He
invested on Furmiture of 1,00,000 , Cash of Rs. 1,50,000 and computers of Rs.
1.00,000 on to start his business. Besides,he has also bought acar of Rs. 5,00,000 by
taking a loan from Bank to travel to canvas for clients instead of earlier using public
conveyance. Hemant employed two staff. He and his staff cater to small business owners
by keeping their books of accounts using TALLY computerized accounting systems. On
a periodical basis, he forwarded financial reports to his clients and advise them
accordingly. He also looks into his clients' system and offer services like establishing
proper inventory system and other important management accounting services. Every
time he completes a certain project/assignment, he would bill his clients on an adhoc
project basis. However, when the proposed assignment/project takes a period longer than
three months, his firm would bill the clients on aprogressive basis.

As he is a CA, the firm also performs routine audits like intermal and final audits to ensure that
his firm, Hemant & Co can give an opinion on the clients' financial statements. After
completion of his intermal audits, the fim wouldbill for reimbursements for expenses incurred
and part of the agreed audit fee.

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 1. What do you think are some investments he nade and how would cach affect the basic

accounting equation?
2. What can be assets and liabilities of Hemant & Co?
3. What kind of expenses might Hemant & Co incur?
4. What kind of revenue does the firm receive?
equation?
5. Expenses and revenues - how are they being reflected in the basic accounting
(Marks 10, BL:5, Evaluate)

Hint: concept of accounting equation and fundamental accounting

the
8. Howperformance of a company can be assessed through Dupont Analysis from
following information (Marks 5, BL:4, Analyze)

PBT Rs. 1,75,000

Tax rate @20%

Net Sales Rs. 8,40,000

Total Assets Rs. 9,46,000

Total Shareholders' equity Rs. 7,16,000

Analysis
How performance of Rixonal Ltd. Can be assessed through Dupont

operating and
9. Ratio analysis is used to evaluate various aspects of a company's
profitability and solvency
financial performance such as its efticiency, liquidity,
various ratios. ( Marks10, BL:5,
Prepare a table showing different interested groups for
Evaluate)

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 10. From the foliowing infomation relating to acompany, prepare astatement of
proprietor's fund (Marks 10, BL:4, Analyze)

Current ratio 2.5

Liquid ratio 1.5
Proprietary ratio 0.75 (fixed assets to proprietary fund)
Working capital Rs. 1,20,000
Reserve and Surplus Rs 60,000

There is no fictitious assets.

Hint: Understanding of proprietor's fund and working

capital
from
A factory produces a standard product. The following information is given to you2012:
11. sheet for the period ended 31 March
which you are required to prepare a Cost
Rs.

Consumable stock: 10,000

Opening Stock 85,000
Purchases 4,000
Closing Stock 20,000
Direct Wages 10,000
Other direct expenses 100% of direct labor
Factory overheads 10% of work cost
Office overheads Rs. 2 per unit sold
Selling anddistribution expenses
Units of finished product: Units 1,000 (Value
In hand at the beginning of the period Rs.16,000)
Produced during the period 10,000units
In hand at the end of the period 2.000 units

on the basis that profit markup is uniformly made to yield

per unit
Also, find out the selling price work-in-progress either at the beginning or at
price. There was no
aprofit of 20% of the selling
(Marks 10, BL:4, Analyze)
the end of the period.
Rs. 2,50,00 after considering the following items:
12. SX Lid. made a profit of
 Goodwillwriten off 2,500
Depreciation on plant and machinery 25,000
Loss on sale of machinery 10,000
Gain on sale of building 3,750

The following are the position of current assets and current liabilities

2018 2019

Debtors 26,000 39,000

Bills Receivable 7,500 6,000
1,000 1.500
Prepaid expenses
Creditors 20,000 25,500
Bills Payable 9,500 6,000
Outstanding expenses 17,000 10,000

How do you any analyze fund operations (Ans 2,66,750)

from
(Marks 10, BL:4, Analyze)
Hint: Concept of cash flow from operating activities

13. Show the following items in the balance sheet of Lamba Ltd. as per Schedule III as
on March 31,2021: (Marks 10, BL:4, Analyze)

8% Debentures Rs. 10,00,000

Equity share capital Rs. 50,00,000
Securities premium Rs. 20,000

Preliminary expenses Rs. 40,000

Statement of Profit & Loss (cr.) Rs. 1,50,000
Fixed ASsets Rs. 59,72,000
Discount on issue of 8% debentures Rs. 40,000
(Amount to be written in next4 years approx.)
Loose tools Rs. 20,000
Bank balance Rs. 60,000
Cash in hand Rs. 38,000
14. From the following is the trial balancc of Vishal Ltd. preparc the Balance Sheet of the
cOmpany as on 31st March 2021 as per Schedule II of the Companies Act Trial
Balance as on 3\st March 2021

Debit Credit
Rs. Rs.

Advances to employees 3,00,000

Equity Share Capital 52,00,000
3,14,320
Cash at Bank 60,000
Capital Reserve
Furmiture & Fixture 7,50,000
8,00,000
Loan from SBI
41,09,940
Premises 6,00,000
Provision for Employees Welfare Fund 10,00,000
Patents 1,64,000
Proposed Dividend 25,000
Discount on issue of shares(unwritten off) 4,90,200
Short term loan from bank
Trade Receivables 3,66,240
64,800
Unpaid dividend
Advance Tax 50,000
42,980
Profit & Loss A/c
3,36,000
8% Govt. Bonds 85,100
Bills Payable 3,55,600
Stock in trade 1,00,020
Sundry Creditors

76,07,100 76,07, 100

( Marks 10, BL:4, Analyze)

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 15. From the following nfomationrelating to acompany, prepare a staterment of
proprnctor's fund Balance Sheet
Curent ratio 2.50
Liquud ratio 7S
Propnetary ratio0 80 (fixed assets to proprietary fund)
Capital geanng ratio 6 (equity share capital to preference share capital)
Working capital Rs. 75,000
Reserve and Surplus Rs. 25,000
There is no fictitious assets (Marks 10, BL:4, Analyze)

l6. E Ltd. furnish the following information for 10,000units of aproduct manufactured
during the year 2011:
Rs.
Material 90,000
Direct wages 60,000
Power and consumable stores 12,000
Indirect wages 15,000
Factory lighting 5,500
Cost of rectification of defective work 3,000
Clerical salaries and management expenses 33,500
Selling expenses 5,500
Sale proceeds of scrap 2,000
Repairs, maintenance and depreciation of plant I1,500

The net selling price was Rs. 31.60per unit sold and all units were sold.
As from 1-1-2012, the selling price was reduced to Rs 31/unit. It was estimated that
could be increased in 2012 by 50%o due to spare capacity. production
Rates for materials and direct wages will increase by 10%
Youare required to prepare:
Cost shcet for the year 20|| showing various elements of
cost'unit, ad
Estimated cost and profit for 2012.

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 Assuming that 15,000units will produced and soldduring theycar and factory overheads
willbe recovered as a percentage of direct wages and office andselling expensesas a
percentage of works cost. (Marks 10, BL:4, Analyze)

17. An investor is interested in two similar companies within the same industry. The investor
areas
wants to Use the DuPont analysis method to compare each company's strengths and
investment option.
of oppotunity and help them decide which company is the better
Fromthe following information, suggest which company is advantageous to invest.

Company 1(Rs. in Company 2 (Rs. in

Crores) Crores)
Net Income 2,000 2,500
8,000 20,000
Revenue

Average Assets 5,000 8,000

2,000 1,000
Average equity
(Marksl10, BL:5, Evaluate)

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 18. Vedika Ltd. finds on 31st December, 2016 that it is short of funds with which to

mplement its branch expansion programme On Ist January. 2016, it had a bank balance
of Rs. 1.80,000 in its curent account. From the following information, prepare a
68,750 at 3Ist
statement for the Board of Directors to show how the overdraft of Rs.
December, 2016 have arisen:

Figures as per Balance Sheet

(as on 31st December) (Rs.)2016
(Rs.) 2015
7,50,000 11,20,000
Fixed Assets
1,90,000 3.00,000
Stock and stores
3,80,000 3,65,000
Debtors
1,80,000 (68,750)
Bank Balance(Overdraft)
2,70,000 3,50,000
Trade Creditors
2,50,000 3,00,000
Share Capital (in shares of Rs. 10 cach)
87,500 95,000
Bills Receivable

depreciation and taxation

The profit for the year ended 3lst December, 2016 before charging
premium of
amounted to Rs.2.40,000. The 5,000 shares were issued on lst January, 2016 at a
including tax on
Rs.5 per share. Rs. 1,37,500was paid in March 2016 by way of income tax
distribution of dividend. Dividend was paid as follows: for 2015 (final) on the capital on 31-12
2015 @ 10% less tax 25% and for 2016 (interim) 5% on capital on 31st March, 2016 free of tax.
(Marks 10, BL:4, Analyze)

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 19. The following financial statements have been extracted from the Annual Report 2016-17
of METCALF TEXTILES Ltd. a largest Textile Company. having astrong presence in
Over 80 countries in the world. The company wants to keep its shareholders happy by

giving them a fair rate of return. The company is using return on equity (ROE) as one of
Due to
the metrics of perfonance evaluation for detemining the return for shareholders.
and to maintain the level
ntense competition, in recent years, its ROE is under pressure
of ROE, the company is to change its business Model-in
that, it is varying its, margin,
assets utilization and leverage.

Youare required to:

parameters given below and
(1) Caryout the DuPont Analysis considering the financial
company (Metcalf Textiles Ltd.) is
show how the return on equity (ROE) of the
utilization and Leverage over the
changing due to change in its Margins, Assets
the trend of the said parameterS.
period of four years. (ii) Give your comments on
(Marks10, BL:5, Evaluate)

Rs.crore)
Statement of Profit & Loss for year ended 31st March, (Amount in
2014 2015 2016 2017

7998 8992 9976 11804

Total revenue
Profit before tax 1855 1612 1990 2817
1514 1345 1574 2110
Profit after tax
Dividend 225 315 225 225

37 51 36 38
Tax on dividend
1252 979 1313 184
Retained carnings

Balance Sheet as at 31st March, (Amount in Rscrore)

2014 2015 2016 2017

Equity and Liabilities

1. Shareholders' fund
a. Share capital 225 225 225 225

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 b.
Reserves and Surplus
2. Non-current liabilities: 8055 9034 10347 12194
Loan Funds
3. Current liabilities 7 617 17 1352
25| 296 324
392

Deferred Tax 8538 10172 10913 14163

Assets
i. Non - Current assets:

Fixed Assets 3774 4369 4685 5276

2. Non -Current investments
Invest1ments 371 799 1449 3642

3. CurTent assets 4393 5004 4779 5245

8538 10172 10913 14163

Its financial
20. ABC Company sells plumbing fixtures on terms of 2/10, net 30.
statements over the last 3 years are as follow

2018 2019
2017
Particulars
20,000 5,000
30,000
Cash 2,90,
2,00,000 2,60,000
Account receivable 000
4,80,000
4,00,000 6,00,
Inventory 8,00,000
8,00,000 000
Net fixed assets
14,30,00 15,60,00 8,00,
000
Account payable
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Accruals 2,30,000 3,00,000 16,95
,000
2,00,000 2,10,000
Bank loan, short term 3,80,
Long term debt 1,00,000 1,00,000 000

Common stock 3,00,000 3,00,000 2,25,

1,00,000 000
1,00,000
Retained carming
5,50,000 1,40,
5,00,000 000
14,30,00 15,60,00
Sales 3.00,
000
Cost of goods sold 43,00,00
40,00,00 1,00,
0
Net profit 000
36,00,00
32,00,00 5,00,
000
3,00,000 2,00,000
16,95
,000
38,00
,000
33,00
000
1,00,
000

condition and performance over the last 3

financial (Marks10,BL:5, Evaluate)
ANALYSE the company's
problems?
years. Arethere any

available for Navya Ltd. along with various

information are
21. Following it belongs to.
APPRAISE your
particulars industry
ratío relevant to the its ratios
weakness of Navya Ltd. comparing
comments on strength and Evaluate)
given industry norms. (Marks10, BL.:5,
with the

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 Nayya Ltd.
BALANCE SHEET AS AT 31.3. 2019

Assets Amount
Liabilities Amount

Fixed Assets 24,20,00)

Equity share 48.00,000
8,80,000
capital Cash
1L,00,000
10% Sundry
Debentures debtors
9.20,000
Sundry Stock 33,00,000
Creditors 6,60,000

Bills Pavabie 8,80,000

Other Current 4,40,000

Liabilities 77,00,000
77,00,000 Total
Total

Statement of Profitability for the year ending 31.03.2018

Amount Amount
Particulars 1,10,00.000
Sales
Less:Cost of goods sold:
Materials 41.80,000
Wages 26,40,000
12,98,000 81,18,000
Factory Overhead
28,82,000
Gross profit 11,00,000
Less: Selling and Distribution 23,28,000
cost 12,28,000
Administrative cost 5,54,000
Eamings before Interest and 92,000
taxes 4,62,000
Less: Interest Charges 2,31,000
Earning before tax
Less: Taxes & 50%
Net Profit (PAT) 2,31,000

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 Ratios Norm
Current Assets/ Current Liabilities 2.5
Sales/debtors 80
Sales Stock 9,0
Sales/Total Assets 2.0

Net Profit/Sales 3.5%

Net Profit/Total Assets 7.0%
Net Profit/Net Worth 10.5%

Total Debt/Total Assets 60.0%

following entries in its

22. Intelligent Ltd., a non-financial company has the
treatment of the same for
Bank Account. It has sought your advice on the
preparing Cash Flow Statement.
following and interest earned on them:
(i) Loans and Advances given to the
(1) tosuppliers
(2) to employees
(3) to its subsidiaries companies
and dividend received
(iü) Investment made in subsidiary Smart Ltd.
(iü) Dividend paid for the year
made
(11) TDS on interest income earned on investments
(iv) TDS on interest earned on advance given to suppliers
(v) Insurance claim received against loss of fixed asset by fire

Discuss in the context of AS 3 Cash Flow Statement

(Marks 10, BL:4, Analyze)

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 23. Following are the extracts of Balance Sheet of Ajay Lid.

Liabilities 31.3.2020 31.3.2020 NI Assets 31.3.2020 X1 31.3,2020 X2

Share Capital 5,00,000 S,00,000 Goodwill 1,15,000 0,000

15°% Delbentures 5,00,000 7,50,000 Discount
UnpaidInterest 5,000 0ssue of 90,000 1.15,000
Profit & Loss 50,000 90,000 Debentures
Ac

You are required to show the related items in Cash Flow Statement, if Discount on
issue of Debentures amounting to Rs 10,000 has been written off during the year

(Marks 10, BL:4, Analyze)

profit'
24.'Operating profitof a business is more important than non-operating
Justify (Marks 5, BL:5, Evaluate)
Equation with Balance
25. Can you establish any relationship of Accounting
Sheet? (Marks5, BL:5, Evaluate)
having
26. Show aBalance Sheet with imaginary figures as per schedule III
DebtEquity Ratio 2:1 and Current ratio of 2:1 (Marks 10, BL:6,
Create)

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 7 The following information is available of a concern. How do youunderstand Fconomic
Value Added (EVA) of the company from the following details

12% Debt Rs.2,000 crores

Equity capital Rs. 500 crores
Reserves and Suplus Rs. 7,500 crores
Risk-free rate 90%
Beta factor 1.05
Market rate of return 19%

Equity (market)risk premium 10%

Operatingprofit after tax Rs. 2,100 crores
Tax rate = 30% (Marks 10, BL:4, Analyze)

Production
records for the year 2017 of a manufacturer:
costing
28. The following are the
10,000 units;
Cost Rs. 1,20,000; Factory Overheads Rs. 80,000;
Rs.2,00,000; Labour
Cost of Raw Materials the Selling
Selling Expenses Rs. 10,000, Rate of Profit 25% on
Office Overheads Rs.40,000;
Price.
units in 2017. It is estimated that the cost of raw
produce 15,000
The manufacturer decided to 10%, 50% of the overhead
will increase by 20%, the labour cost will increase by
materials
are variable. The selling expenses per unit will be reduced
charges are fixed and the other 50%
showing the selling price per unit ensuring same percentage of profit is
by 20%. Prepare a chart
maintained.
(Marks 10, BL:4, Analyze)

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