SYBMS

Sem-IV

ACCOUNTING FOR MANAGERIAL DECISIONS

ASST. PROF. RAHUL RAJPARA

M.Com (Accountancy), NET (Commerce), SET (Commerce)
 Syllabus

1.Analysis and Interpretation of Financial Statements

2.Ratio Analysis and Interpretation
3.Cash Flow Statement
4.Working Capital
 Learning Objectives and Learning Outcomes

The objective behind the course is:

➢ Analyze financial statements to assess a company’s performance and trends.

➢ Use ratio analysis to evaluate profitability, liquidity, and solvency.
➢ Prepare and interpret cash flow statements for liquidity assessment.
➢ Manage working capital to optimize operations and financial stability.
➢ Apply financial analysis for informed decision-making and resource allocation.
 CH.01 Analysis and Interpretation of Financial Statements
• Study of Manufacturing, Trading, P&L A/c and B/s of Limited Co.

• Vertical Form of B/s and P&L A/c

o Trend Analysis
o Comparative Statement
o Common Size Statement
Financial Statements
• Items included in Financial Statements
According to Standard on Auditing (SA) 200 by the ICAl, the term "General Purpose Financial
Statements" [FS] includes –
1. a balance sheet,
2. a statement of profit and loss,
3. a cash flow statement (wherever applicable),
4. statements and explanatory notes which form part thereof; and
5. supplementary schedules and information based on such statements.
Financial Statements
• Items not included in Financial Statements
FS do not include such items as :
o reports by directors,
o statements by the chairman,
o discussion and analysis by management etc. that may be included in a financial or annual
report.
Financial Statements
• Requirement
Financial statements are ordinarily prepared and presented annually. The financial statements aim
to meet the need for information of different types of users. In view of this, financial statements
need to be prepared in accordance with :
1. relevant statutory requirements, e.g., the Companies Act, 2013, for companies
2. accounting standards issued by ICAI
3. Guidance Notes issued by ICAI containing recommended accounting principles and practices.
These requirements are known as ‘financial reporting framework'.
 Share Capital

Authorized /
Registered / Unauthorized
Nominal

Unissued
Issued Capital
Capital

Subscribed Unsubscribed
Capital Capital

Called Up
Uncalled Capital
Capital

Paid Up Capital

Unpaid Capital
Call-in-Arrears
 Types of Shares

Equity Shares Preference Shares

Participating & Non-Participating

With Normal Voting
Rights
Redeemable & Irredeemable

Convertible & Non-Convertible

With Differential
Voting Rights Cumulative & Non-Cumulative
 Proforma of Comparative Balance Sheet
I. SOURCES OF FUNDS
1. Shareholder’s Funds
A. Share Capital
B. Reserve & Surplus
Less: Fictitious Assets / Miscellaneous Expenditure
2. Borrowed Funds
TOTAL

II. APPLICATION OF FUNDS

1. Fixed Assets
2. Investments
3. Working Capital
a. Current Assets
Less: b. Current Liabilities
Net Working Capital
TOTAL
 Proforma of Comparative Income Statement
Net Sales Net Sales
Less: COGS Less: COGS
Gross Profit Gross Profit
Less: Operating Expenses Less: Operating Expenses
a. Office & Administrative Exp a. Office & Administrative Exp
b. Selling & Distribution Exp b. Selling & Distribution Exp
c. Finance Exp c. Finance Exp
NPBIT Operating Profit
Less: Interest Add: Other Income
NPBT Less: Other Expenses
Less: Tax NPBT
NPAT Less: Tax
NPAT
1. Gross Sales & Services (Revenue from Operation) 6. Less: Operating Expenses 7. Operating Profit before Interest
(a) Cash (A) Administration Expenses 8. Less : Interest Paid
(b) Credit (i) Office Salaries a. Interest on Debentures or Bonds
2. Less: Returns & Allowances (ii) Office Rent, Rates and Taxes
3. Net Sales (iii) Insurance b. Interest on Loans
4. Less: Cost of Goods Sold (iv) Electricity for Office c. Interest on Public Deposits
(a) Opening Stock (RM) (v) Printing & Stationery d. Interest on Short-Term Loans
(b) Purchases (RM) (vi) Depreciation on Office Assets 9. Net Profit after Interest
(c) Freight, Octroi, Duty (vii) Postage and Telephones 10. Net Non-operating Income
(d) Less: Closing Stock (RM) (viii) Director's Fees (a) Non-operating Income
Raw Material Consumed (ix) Legal Expenses i. (b) Dividends on Shares
(e) Direct Expenses (x) Audit Fees ii. (c) Interest on Debentures, Loans etc.
(i) Factory Power (xi) Repairs iii. (d) Profit on Sale of Fixed Assets / Investment
(ii) Wages (xii) Other. iv. (e) Damages received
(iii) Other Manufacturing Expenses Administration Expenses v. (f) Royalty
(f) Depreciation (B) Selling & Distribution Expenses vi. (g) Shares Transfer Fees
(i) on Machinery (i) Salaries to salesmen Non-operating Income
(ii) on Factory Building (ii) Rent of shop, show-rooms (b) Less: Non-operating Expenses
(iii) on Patterns / Patents (iii) Depreciation on Delivery vans (i) Loss on Sale of Fixed Assets / Investment
(g) Opening Stock : W-I-P (iv) Exhibition, Trade Fair (ii) Damages paid / due
(h) Less: Closing Stock: W-I-P (v) Advertisement or Publicity (iii) Fine or Penalty
(i) Less: Sale Scrap (vi) Travelling / Van Expenses (iv) Fictitious Assets w/o
(j) Opening Stock (FG) (vii) Sale Discount / Commission Non-operating Expenses
(k) Purchases (FG) (viii) Normal Bad Debts Net Non-Operating Income
(l) Less: Closing Stock (FG) Selling & Distribution Expenses 11. Net Profit before Tax (NPBT)
Cost of Goods Sold (C) Finance Charges 12. Less: Income Tax
5. Gross Profit (i) Cash Discount 13. Net Profit after Tax (NPAT)
6. Less: Operating Expenses (ii) Bank Charges / Commission 14. Add: Profit & Loss Balance b/d
(A)Administration Expenses (iii) Abnormal Bad debts Profit Available for Appropriations
(B) Selling & Distribution Expenses Finance Charges 15. Less: Appropriations
(C)Finance Charges Total Operating Expenses (Except Interest) a. Sinking Funds / Reserves
b. Dividends Paid
16. Retained Profits
The balance sheet represents: Which of the following is classified as a current asset?
A) Financial performance over time A) Land
B) Financial position at a specific point in time B) Inventory
C) Cash inflows and outflows C) Patents
D) Revenue trends over multiple years D) Equipment
ANSWER: B ANSWER: B

Trend analysis in financial statements is used to: capital employed is equal to:
A) Compare financial data across different companies A) Fixed Assets + Investment + Current Assets
B) Identify financial patterns over a period of time B) Fixed Assets + Investment + Working Capital
C) Determine tax liabilities C) Fixed Assets + Investment + Current Assets
D) Compute inventory turnover D) None of the above
ANSWER: B ANSWER: B

Comparative analysis of financial statements involves: In vertical balance sheet, fictitious assets are deducted from:
A) Comparing financial data of one company over multiple years A) Share Capital
B) Comparing financial data across different companies B) Reserve and Surplus
C) Both (A) and (B) C) Current Assets
D) Neither (A) nor (B) D) Current Liabilities
ANSWER: C ANSWER: B

In a common-size balance sheet, each item is expressed as a Which of the following is NOT a component of current liabilities?
percentage of: A) Bills Payable
A) Total revenue B) Bank Overdraft
B) Total assets C) Outstanding Expenses
C) Net profit D) Debentures
D) Operating expenses ANSWER: D
ANSWER: B
The quick ratio is also known as the: A company’s ability to pay its short-term obligations is best
A) Cash Flow Ratio measured by:
B) Acid-Test Ratio A) Debt-to-Equity Ratio
C) Debt-to-Equity Ratio B) Return on Assets
D) Asset Turnover Ratio C) Current Ratio
ANSWER: B D) Price-to-Earnings Ratio
ANSWER: C
A common-size balance sheet each item is calculated as a
percentage of: Trend analysis can be done using:
A) Net Worth A) Horizontal analysis
B) Working Capital B) Vertical analysis
C) Capital Employed C) Ratio analysis
D) Total Liabilities D) All of the above
ANSWER: C ANSWER: D

Which financial statement helps in assessing the solvency of a Comparative analysis helps stakeholders by:
company? A) Evaluating performance against industry peers
A) Balance Sheet B) Ignoring financial trends
B) Income Statement C) Reducing tax liabilities
C) Statement of Cash Flows D) Manipulating financial data
D) None of the above ANSWER: A
ANSWER: A
Which of the following is a current liability?
Which of the following is considered a liquidity ratio? A) Accounts Receivable
A) Return on Equity B) Retained Earnings
B) Inventory Turnover C) Accounts Payable
C) Quick Ratio D) Intangible Assets
D) Earnings per Share ANSWER: C
ANSWER: C
An increasing trend in accounts receivable could indicate:
A) Faster collection of payments
B) Slower collection of payments
C) Decreasing sales
D) Increasing inventory levels
ANSWER: B

The working capital formula is:

A) Current Assets - Current Liabilities
B) Total Assets - Total Liabilities
C) Revenue - Expenses
D) Operating Cash Flow - Depreciation
ANSWER: A

A declining trend in the current ratio may indicate:

A) Improvement in liquidity
B) Declining liquidity position
C) Higher profitability
D) Decreasing debt levels
ANSWER: B

Banks generally prefer Debt Equity Ratio at:

A) 1:1
B) 1:3
C) 2:1
D) 3:1
ANSWER: C
 Provisions of the Companies Act, 2013
• AGM
• A.Y.
• B/S Part-I of Schedule-III
• P&L Part-II
• Vertical Schedule-III
 Structure of Schedule-III
• General Instructions
• Part-I B/S
• General Instructions for Preparation of B/S
• Part-II P&L
• General Instructions for P&L statement
• General Instructions for preparation of Consolidated Financial Statement
A. EQUITY & LIABILITIES B. ASSETS
1. Shareholder Funds 1. Non-Current Assets
a. Share Capital a. Fixed Assets
b. Reserve & Surplus i. Tangible Assets
2. Non-Current Liabilities ii. Intangible Assets
a. Long-Term Borrowings b. Non-Current Investment
b. Other Long-Term Liabilities c. Long-Term Loans & Advances
c. Long-Term Provisions d. Other Non-Current Assets
3. Current Liabilities 2. Current Assets
a. Short-Term Borrowings a. Current Investment
b. Trade Payable b. Inventories
c. Other Current Liabilities c. Trade Receivables
d. Short-Term Provisions d. Cash & Cash Equivalents
e. Short Term Loans & Advances
f. Other Current Assets
Total Total
Particulars ₹ Particulars ₹
A. EQUITY & LIABILITIES B. ASSETS
1. Shareholder Funds 1. Non-Current Assets
a. Share Capital a. Fixed Assets
b. Reserve & Surplus i. Tangible Assets
2. Non-Current Liabilities ii. Intangible Assets
a. Long-Term Borrowings b. Non-Current Investment
b. Other Long-Term Liabilities c. Long-Term Loans & Advances
c. Long-Term Provisions d. Other Non-Current Assets
3. Current Liabilities 2. Current Assets
a. Short-Term Borrowings a. Current Investment
b. Trade Payable b. Inventories
c. Other Current Liabilities c. Trade Receivables
d. Short-Term Provisions d. Cash & Cash Equivalents
Total e. Short Term Loans & Advances
f. Other Current Assets
Total
Particulars ₹ Particulars ₹
A. EQUITY & LIABILITIES B. ASSETS
1. Shareholder Funds 1. Non-Current Assets
a. Share Capital a. Fixed Assets
b. Reserve & Surplus i. Tangible Assets
2. Non-Current Liabilities ii. Intangible Assets
a. Long-Term Borrowings b. Non-Current Investment
b. Other Long-Term Liabilities c. Long-Term Loans & Advances
c. Long-Term Provisions d. Other Non-Current Assets
3. Current Liabilities 2. Current Assets
a. Short-Term Borrowings a. Current Investment
b. Trade Payable b. Inventories
c. Other Current Liabilities c. Trade Receivables
d. Short-Term Provisions d. Cash & Cash Equivalents
Total e. Short Term Loans & Advances
f. Other Current Assets
Total
Particulars ₹ Particulars ₹
A. EQUITY & LIABILITIES B. ASSETS
1. Shareholder Funds 1. Non-Current Assets
a. Share Capital a. Fixed Assets
b. Reserve & Surplus i. Tangible Assets
2. Non-Current Liabilities ii. Intangible Assets
a. Long-Term Borrowings b. Non-Current Investment
b. Other Long-Term Liabilities c. Long-Term Loans & Advances
c. Long-Term Provisions d. Other Non-Current Assets
3. Current Liabilities 2. Current Assets
a. Short-Term Borrowings a. Current Investment
b. Trade Payable b. Inventories
c. Other Current Liabilities c. Trade Receivables
d. Short-Term Provisions d. Cash & Cash Equivalents
Total e. Short Term Loans & Advances
f. Other Current Assets
Total
Particulars ₹ Particulars ₹
A. EQUITY & LIABILITIES B. ASSETS
1. Shareholder Funds 1. Non-Current Assets
a. Share Capital a. Fixed Assets
b. Reserve & Surplus i. Tangible Assets
2. Non-Current Liabilities ii. Intangible Assets
a. Long-Term Borrowings b. Non-Current Investment
b. Other Long-Term Liabilities c. Long-Term Loans & Advances
c. Long-Term Provisions d. Other Non-Current Assets
3. Current Liabilities 2. Current Assets
a. Short-Term Borrowings a. Current Investment
b. Trade Payable b. Inventories
c. Other Current Liabilities c. Trade Receivables
d. Short-Term Provisions d. Cash & Cash Equivalents
Total e. Short Term Loans & Advances
f. Other Current Assets
Total
Particulars ₹ Particulars ₹
A. EQUITY & LIABILITIES B. ASSETS
1. Shareholder Funds 1. Non-Current Assets
a. Share Capital a. Fixed Assets
b. Reserve & Surplus i. Tangible Assets (Net Block)
2. Non-Current Liabilities ii. Intangible Assets
a. Long-Term Borrowings b. Non-Current Investment
b. Other Long-Term Liabilities c. Long-Term Loans & Advances
c. Long-Term Provisions d. Other Non-Current Assets
3. Current Liabilities 2. Current Assets
a. Short-Term Borrowings a. Current Investment
b. Trade Payable b. Inventories
c. Other Current Liabilities c. Trade Receivables
d. Short-Term Provisions d. Cash & Cash Equivalents
Total e. Short Term Loans & Advances
f. Other Current Assets
Total
Particulars ₹ Particulars ₹
A. EQUITY & LIABILITIES B. ASSETS
1. Shareholder Funds 1. Non-Current Assets
a. Share Capital a. Fixed Assets
b. Reserve & Surplus i. Tangible Assets
2. Non-Current Liabilities ii. Intangible Assets
a. Long-Term Borrowings b. Non-Current Investment
b. Other Long-Term Liabilities c. Long-Term Loans & Advances
c. Long-Term Provisions d. Other Non-Current Assets
3. Current Liabilities 2. Current Assets
a. Short-Term Borrowings a. Current Investment
b. Trade Payable b. Inventories
c. Other Current Liabilities c. Trade Receivables
d. Short-Term Provisions d. Cash & Cash Equivalents
Total e. Short Term Loans & Advances
f. Other Current Assets
Total
 CH.02 Ratio Analysis and Interpretation

• Ratio Analysis and Interpretation: (based on vertical form of financial statements) including conventional and
functional classification restricted to:

• Balance sheet ratios: Current ratio, Liquid Ratio, Stock Working capital ratio, Proprietory ratio, Debt Equity Ratio,
Capital Gearing Ratio.

• Revenue statement ratios: Gross profit ratio, Expenses ratio, Operating ratio, Net profit ratio, Net Operating Profit
Ratio, Stock turnover Ratio, Debtors Turnover, Creditors Turnover Ratio

• Combined ratios: Return on capital Employed (including Long term borrowings), Return on Proprietors fund
(Shareholder fund and Preference Capital), Return on Equity Capital, Dividend Payout Ratio, Debt Service Ratio

• Different modes of expressing ratios: Rate, Ratio, Percentage, Number. Limitations of the use of Ratios.
A. Balance Sheet Ratios:
1. Current Ratio = Current Assets / Current Liabilities
2. Liquid Ratio = (Current Assets – Stock – Prepaid Exp) / Current Liabilities – BOD
3. Stock Working Capital Ratio = Stock / Working Capital *100
4. Proprietary Ratio = (Shareholders' Equity + Preference Capital) / Total Assets * 100
5. Debt Equity Ratio = BF / SHF
6. Capital Gearing Ratio = Capital bearing Fixed Returns / Capital bearing Fluctuating Returns

B. Revenue Statement Ratios:

1. Gross Profit Ratio = (Gross Profit / Net Sales) * 100
2. Expenses Ratio = (Total Expenses / Net Sales) * 100
3. Operating Ratio = (COGS + Operating Expenses) / Net Sales * 100
4. Net Profit Ratio = (Net Profit / Net Sales) * 100
5. Net Operating Profit Ratio = (Operating Profit / Net Sales) * 100
6. Stock Turnover Ratio = COGS/ Average or Closing Stock
C. Combined Ratios:
1. Return on Capital Employed = (EBIT/ CE) * 100
2. Return on Proprietor's Fund = (NPAT / Proprietor's Fund) * 100
3. Return on Equity Capital = (NPAT - PD / Equity Capital) * 100
4. Dividend Payout Ratio = (Dividend Paid to ESH / NPAT - PD) * 100
5. Debt Service Ratio = (NPBIT / Interest) * 100
6. Debtors Turnover = Credit Sales / (Debtors + B/R)
7. Creditors Turnover = Credit Purchases / (Creditors + B/P)
 Limitations of the Use of Ratios
1. Lack of Context
• Ratios provide numerical relationships but do not explain the reasons behind the figures.
• They must be interpreted within the industry, economic conditions, and company-specific factors.

2. Comparability Issues
• Different companies use different accounting methods (e.g., FIFO vs. LIFO inventory valuation), making direct comparisons misleading.
• Variations in financial reporting standards across countries can affect ratio accuracy.

3. Historical Focus
• Ratios are based on past financial statements and may not reflect current or future conditions.
• Rapid market changes can make historical data less relevant.

4. Inflation Effects
• Inflation can distort financial statements, making comparisons over time unreliable.
• Asset values may be understated or overstated, affecting ratios like Return on Assets (ROA).

5. Qualitative Factors Ignored

• Ratios do not consider qualitative aspects like management quality, brand reputation, or employee morale.
• Non-financial factors such as regulatory changes and technological advancements are overlooked.

6. One-Dimensional View
• A single ratio does not provide a complete picture of a company’s financial health.
• Multiple ratios must be analyzed together to get meaningful insights.

7. Potential for Manipulation

• Companies can manipulate financial statements (e.g., by delaying expenses or recognizing revenue early) to improve ratios.
• Creative accounting practices can distort financial analysis.

8. Industry Differences
• What is considered a "good" ratio varies by industry (e.g., a high debt ratio is normal for capital-intensive industries but risky for others).
• Industry benchmarks must be considered for meaningful interpretation.
 CH.04 Working Capital

• Meaning: Day-to-Day Business Expenses

• Types: Gross and Net +ve and –ve Permanent and Temporary B/S and Cash WC

• Factors Affecting WCR:

Nature of Business
Size of Business
Seasonal Business
Credit Terms

• Operating Cycle
Q.3. From the following figures, prepare an estimate of the working capital:

Production 30,000 units

Selling Price per unit ₹ 10
Raw Material 60% of selling price
Direct wages 1/6th of raw material
Overheads Twice the Direct wages
Material in hand 2 months requirement
Production time 1 month
Finished goods in stores 3 months
Credit for material 2 months
Credit allowed to customers 3 months
Average cash balance ₹ 40,000

Wages and overheads are paid in the beginning of next month. In production all the material are charged
in the initial stage and wages and overheads accrue evenly.
Q.4. A Ltd. manufactured and sold 30,000 machines in the year 2016 at 100% capacity. Following information is available for the same year.

Materials- ₹ 7,50,00,000 Labour- ₹ 3,00,00,000 Sales- ₹ 15,00,00,000 Gross Profit- 20% on Sales

Due to slow down in economy the company has decided to reduce its production to 50% of its capacity during the year 2017.

It is estimated that:
(a) Price of Raw material will be reduced by 10% per unit.
(b) Wages will be reduced by 20% per unit.
(c) Overheads will be increased by 10% per unit.
(d) Selling price per unit to be estimated to maintain profit on sales at 20%.

Additional information for the year 2017.

(1) Raw material will remain in stock for one month.
(2) Finished goods will remain in warehouse for 2 months.
(3) Customers (at selling price) will enjoy one month credit.
(4) Suppliers will allow 2 months credit.
(5) Time lag in payment of wages and overheads will be 1 month.
(6) Processing period one month.
(7) Cash and bank balance should be ₹ 30,00,000.
You are required to forecast working capital required/requirement for the year 2017.
Q.5. The management of Pooja Ltd. has asked you to prepare an estimate showing the working capital requirement for 2016-17, along with estimated cost sheet.
Present Position - 2022-23:
Operating Capacity - 40%, giving output of 40,000 units for the year.
Cost Structure per unit -
Raw Material ₹ 20
Direct Labour ₹ 15
Overheads ₹ 10
Profit ₹5
Estimates for the next year 2023-24:
Operating Capacity - 60%
Cost Structure -
Raw material cost to increase by 10%
Direct Labour cost to increase by 20%
Overheads to increase by 20%
Selling Price to increase by 20%
The following further information is available:
1. The purchase, production and sales pattern is assumed be even throughout the year.
2. The raw materials will remain in stock for 1 month.
3. The production process with take 1 month wherein labour and overheads will accrue evenly during the process.
4. The finished goods will remain in the stock for 2 months.
5. The customers will be allowed a credit of 2 months.
6. The suppliers will allow a credit of 1 month.
7. The time-lag in payment of labour will be 1 month.
8. The time-lag in payment of overheads will be half a month.
9. The cash and bank balance is expected to be ₹ 25,000.
10. Calculate debtors on cost basis.
11. 20% of the purchase will be on cash basis.
Q. 6. From the following information given by M/s. Q & Co. Pvt. Ltd., prepare an estimate of Working Capital for the
year ended 31st March 2017.
1. Estimated level of activity - 1,04,000 units for the year 52 weeks
2. Cost of Raw Materials per unit-5
3. Cost of Labour per unit - 40% of Raw materials
4. Cost of Overheads per unit - 50% of the Labour cost
5. Profit per unit is 200% of Overheads.
6. Stock of Raw Materials - 4 weeks
7. Processing period - 4 weeks
8. Stock of Finished Goods - 4 weeks
9. Credit to the Debtors - 6 weeks
10. Credit by the Creditors - 4 weeks
11. Time lag in payment of Wages - 4 weeks
12. Time lag in payment of Overheads - 2 weeks
13. Cash and Bank Balance required - ₹ 40,000
14. Debtors are calculated on Sales basis
15. Purchases against Cash - 20%
16. All the activities are spread evenly throughout the year
17. During processing, Labour and Overhead accrue evenly
Q.7. Radhika Manufacturing Limited presents the following information for 2016-17. Estimated Yearly Production and
Sales = 60,000 units
Estimated Cost Elements per unit.
Raw Materials ₹5
Wages ₹3
Overheads ₹2
Selling Price ₹ 12
Further Information:
1. The company extends two months credit to the debtors.
2. The company maintains one month's stock of Raw materials.
3. The company maintains one month's stock of Finished goods.
4. The processing period is one month.
5. The company is allowed two months credit by suppliers.
6. Wages and Overheads are paid one month in arrears.
7. The cash and bank balance is expected to be equal to ₹ 25,000/-.
8. There is regular purchase, production and sales cycle.
9. During production process wages and overheads accrue evenly.
10. Debtors are to be calculated on cost basis.
11. 20% of the customers pay one month in advance.
Prepare statement showing an estimate of working capital.
Q.8. The following are the particulars of Vijay & Company for the year 2016-17. Calculate the working
capital estimate for an annual sales of 78,000 units.
1. Cost Sheet
Particulars ₹ (per unit)
Raw Material ₹ 40
Wages ₹ 20
Overheads ₹ 30
Profit ₹ 30
2. Production and Sales take place evenly throughout the year.
3. Raw Material is on eight weeks credit.
4. Raw Material remains in stock for eight weeks.
5. Processing period is of two weeks, wherein Raw Material, Wages and Overheads accrue evenly.
6. Finished Goods remain in stock for ten weeks.
7. Customers are given nine weeks credit.
8. Time lag in payment of wages is four weeks.
9. Time lag in payment of overheads is two weeks.
10. Cash and Bank Balance is maintained at ₹ 1,05,000.
11. Calculate Debtors on sales.
Q.11. A Factory produces 84,000 units during the year and sells them @ ₹50 per unit.
Cost structure of a product is as follows:
Raw Materials 55%
Labour 18%
Overheads 17%
Total Cost 90%
Profit 10%
Selling Price 100%
The following additional information is available:
(1) The activities of purchasing, producing and selling occur evenly throughout the year.
(2) Raw Materials equivalent to 1 1/2 months supply is stored in godown.
(3) The production process takes 15 days.
(4) Finished goods equal to one month's production are carried in stock.
(5) Debtors get 1 month credit.
(6) Creditors allow 2 months credit.
(7) Time lag in payment of wages and overheads is 1 month.
(8) Cash & Bank Balance is to be maintained at 15% of the working capital.
(9) 25% of purchases are for cash.
Draw a forecast of working capital requirements of the factory.
Q.12. From the following information provided by M/s. P & Co. Pvt. Ltd., prepare a statement showing
Working Capital requirements for the year 2016-17:

(a) Estimated sales for the year 2016-17 ₹ 21,60,000.

(b) Estimated cost structure ratios to selling price - Raw Materials 60%, Labour 20% and Overheads 10%.
(c) Selling price ₹ 20 per unit.
(d) Raw Materials remain in stock for 2 months.
(e) Materials remain in process for 1 month.
(f) Finished Goods remain in stock for 1 month.
(g) Customers are allowed 2 months credit.
(h) Suppliers allow 1 month credit.
(i) Time lag in payment of Wages is one month.
(j) Time lag in payment of Overheads is half a month.
(k) Cash and Bank Balance is expected to be 25% of the Debtors.
(1) Provide a Margin of Safety at 10%.
(m) Debtors are to be calculated at Selling Price.
(n) During the manufacturing process Labour and Overhead accrue evenly.
Q.13. From the following estimates and information relating to Nirmala Products Private Limited.
Calculate working capital requirement for the year 2016-17.
1. Expected level of production and sale of the year - 1,80,000 units.
2. Cost per unit - Raw materials ₹ 9, Direct labour ₹ 4 and Overheads ₹ 6.
3. Selling price per unit ₹ 22.
4. Raw Materials in stock on an average for 30 days.
5. Materials are in process on an average for 15 days.
6. Finished goods in stock on an average for 30 days.
7. Credit allowed by suppliers is 30 days.
8. Time lag in payment from customers is 60 days.
9. Time lag in payment of labour is 15 days.
10. Time lag in payment of overheads is 30 days.
11. All the sales are on credit except 10% sales which are on cash basis.
12. Cash and Bank balance is expected to be ₹ 67,000/-.
13. The production and sales are evenly spread throughout the year.
14. Labour and Overheads accrue evenly during processing period.
15. Company works for 360 days during an accounting year.
16. Estimate debtors on cost basis.
Q.14. Ruby manufacturing company gives the following details. Estimated level of activity 26,000 units of production for the year
2016-17.
Estimated Cost per Unit is:
Raw Materials ₹ 20
Direct Wages ₹8
Overheads ₹16
Selling Price ₹ 50
Further information:
1. Raw material in stock average 4 weeks consumption.
2. Work-in-Progress 2 weeks.
3. Finished Goods in stock 2 weeks.
4. Credit allowed by suppliers 2 weeks.
5. Credit allowed to debtors 3 weeks.
6. Lag in payment of wages and overheads 1 week.
7. Cash at Bank for smooth operation in expected to be ₹ 24,000.
8. Production is carried on evenly throughout the year.
9. Provide a margin of safety at 10%.
10. Debtors are to calculated at selling price.
11. 25% purchases and 20% sales are against cash.
You are required to prepare a statement showing working capital requirements for the year 2016-17.
Q.15. Prajisha Ltd. manufactures and sales 2,40,000 units of a product in a year. The selling price of the product is ₹ 50 per unit and
its analysis is:
Raw Material 40%
Direct Labour 20%
Other Direct Cost 10%
General Overheads 10%
Selling and Distribution Overheads 10%, and the balance is profit

The following estimates for the year 2018 are given for your consideration:
(a) 'Raw Materials' remain in stock for 1 month.
(b) Suppliers of Raw Materials allow 2 month's credit.
(c) The 'Work-in-Progress' is to be valued at 80% of the total direct costs of one month's production
(d) 'Finished Goods' equal to 1/2 month's requirement are in stock.
(e) Customers are allowed 2 months' credit.
(f) Time lag in payment of wages is one month.
(g) Both the overheads are paid one month in advance.
(h) of the total sales 40% is on credit.
(i) Cash for contingencies is maintained at 10% of net working capital (excluding cash).
(i) Sundry debtors are to be valued at selling price.
(k) All the activities of production and sales accrue evenly throughout the year.
Calculate estimated working capital requirement of Prajisha Ltd. for the year 2018.
 CH.03 Cash Flow Statement

• Preparation of Cash Flow Statement (AS-3)

 CH.03 Cash Flow Statement

Type of Activity Description Examples

- Cash receipts from customers
- Cash payments to suppliers and employees
Operating Cash flows from core business
- Interest received and paid
Activities operations.
- Taxes paid
- Other operational cash expenses
- Purchase / sale of Fixed Assets / investments
Investing Cash flows from acquisition and
- Lending / collection of loans (except for financial
Activities disposal of long-term assets.
institutions)
- Issuance / repurchase of shares
Financing Cash flows related to funding from - Borrowings and repayments of loans
Activities debt and equity. - Dividend payments
- Buyback of shares
 Particulars Amount (₹)
Cash Flows from Operating Activities
Net Profit Before Tax XXX
Adjustments for:
- Depreciation & Amortization XXX
- Interest Expense XXX
- Interest Income (XXX)
- Loss / (Gain) on Sale of Assets (XXX) / XXX
Operating Profit before Working Capital Changes XXX
- ADD: Decrease in Current Assets / Increase in Current Liabilities (XXX) / XXX
- LESS: Increase in Current Assets / Decrease in Current Liabilities XXX / (XXX)
Cash Generated from Operations XXX
- Less: Income Taxes Paid (XXX)
Net Cash from Operating Activities (A) XXX

Cash Flows from Investing Activities

- Purchase of Fixed Assets (XXX)
- Proceeds from Sale of Assets XXX
- Purchase of Investments (XXX)
- Proceeds from Sale of Investments XXX
- Interest Received XXX
Net Cash from Investing Activities (B) XXX
 Particulars Amount (₹)
Cash Flows from Financing Activities
- Proceeds from Issue of Shares XXX
- Dividend Paid (XXX)
- Proceeds from Borrowings XXX
- Repayment of Borrowings (XXX)
- Interest Paid (XXX)
Net Cash from Financing Activities (C) XXX
Net Increase / (Decrease) in Cash (A + B + C) XXX
Opening Cash & Cash Equivalents XXX
Closing Cash & Cash Equivalents XXX
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