Question Bank – Financial Reporting and Analysis
Unit 1
1. Compare and contrast between various streams of accounting.
2. Discuss the various users of information appearing in the financial statements.
3. Discuss the difference between the terms “cost” and “expenditure”.
4. What do you mean by the term “depreciation”? Discuss in details the methods for
calculating depreciation.
5. Explain various steps in the accounting cycle.
6. What are the elements in the financial statements? Prepare a draft of various financial
statements.
Unit 2
1. What are the various forms of business organizations?
2. Discuss various accounting principles and conventions
3. Explain the contents in the published financial statements of a company form of
organization.
4. Explain the purpose and contents of a cash flow statement.
5. Explain the purpose and contents of a funds flow statement.
6. What are principles applicable for the interpretation of a funds flow statement?
Illustrative Problems
Q. 1
From the following information, prepare the funds flow statement and statement showing
changes in working capital for the year ending on 31st March 2018.
Balance Sheets
(Rs. In Lakhs)
2017 2018 2017 2018
Share Capital 4.50 5.00 Fixed Assets 4.00 3.20
Reserves 3.56 3.78 Investments 0.50 0.60
Creditors 1.68 1.34 Stocks 2.40 2.10
Provision for Tax 0.75 0.10 Debtors 2.10 4.55
Secured Loan Nil 2.20 Cash and Bank 1.49 1.97
10.49 12.42 10.49 12.42
Additional information –
a. Investments costing Rs. 8,000 were sold for Rs. 8,500 during the year.
b. Provision for taxation made during the year amounted to Rs. 9,000
c. During the year, a part of the fixed assets having the book value of Rs. 10,000 were sold
for Rs. 12,000
d. Dividend paid during the year amounted to Rs. 40,000.
Q. 2
From the following information, prepare the cash flow statement for the year ending on 31 st
March 2018.
Balance Sheets
2017 2018 2017 2018
Share Capital 1,00,000 1,25,000 Fixed Assets 1,75,000 1,82,000
Reserves 40,250 45,300 Stock 50,000 37,000
Creditors 75,000 67,500 Debtors 40,000 32,000
Provision for Tax 15,000 17,500 Cash and Bank 250 4,300
Secured Loan 35,000 Nil
2,65,250 2,55,300 2,65,250 2,55,300
Additional Information –
a. Dividend paid during the year amounted to Rs. 11,000
b. Depreciation on fixed assets amounted to Rs. 7,000
c. Provision for income tax during the year Rs. 16,500
Unit 3
1. Draft a balance sheet as per the provisions of Schedule 3 of Companies Act, 2013.
2. Discuss the following as sources for raising the long term funds by a company –
Equity Shares
Preference Shares
Debentures
3. Discuss in details various types of Share Capital that appear on the Balance Sheet of
company.
4. Discuss “Bank” as a source of financing working capital requirements for a company.
5. Write a detailed note on “Contingent Liabilities”
6. Explain the term “Security” in connection with secured loans. What is the purpose of
offering the security? Explain different forms in which security can be offered.
Illustrative Problems
Q. 1
From the following Trial Balance, prepare Trading and Profit & Loss Account and Balance Sheet
for Mr. A.
Particulars Debit – Rs. Credit- Rs.
Debtors 5,00,000
Creditors 2,00,000
Wages 1,55,000
Carriage Outward 1,10,000
Carriage Inward 50,000
Miscellaneous Expenses 70,000
Cash Discount 20,000
Bad Debts 10,000
Vehicle 2,40,000
Stationary Expenses 15,000
Furniture 1,10,000
Advertisement 85,000
Insurance 45,000
Salesman’s Commission 87,500
Telephone 57,500
Salaries 1,60,000
Drawings 45,000
Capital 14,43,000
Purchases 15,50,000
Sales 19,87,500
Opening Stock 2,50,000
Bank Balance 60,000
Cash Balance 10,500
36,30,500 36,30,500
Adjustments –
a. Closing Stock was valued at Rs. 7,25,000 (Market Value Rs. 7,50,000)
b. Depreciation to be provided on Vehicle @20% and on Furniture @10%
c. Insurance Expenses include Rs. 10,000 as prepaid insurance
d. Purchases include purchases of furniture worth Rs. 50,000
e. Bad Debts amount to 5% of Debtors
Q. 2
From the following Trial Balance, prepare Trading and Profit & Loss Account and Balance Sheet
for Mr. A.
Particulars Debit – Rs. Credit- Rs.
Capital 1,00,000
Furniture 20,000
Purchases 1,50,000
Debtors 2,00,000
Interest Received 12,000
Salaries 30,000
Purchases Returns 5,000
Sales 3,21,000
Wages 20,000
Rent 15,000
Sales Returns 10,000
Telephone Expenses 7,000
Creditors 1,20,000
Drawings 24,000
Stationary Expenses 8,000
Insurance 12,000
Opening Stock 50,000
Office Expenses 12,000
5,58,000 5,58,000
Adjustments –
a. Closing Stock was valued at Rs. 60,000 (Market Value Rs. 75,000)
b. Depreciation to be provided Furniture @10%
c. Insurance Expenses include Rs. 2,000 as prepaid insurance
d. Salaries for the last month amounting to Rs. 3,000 remain unpaid. However, salaries for
the next month amounting to Rs. 2,000 are paid in advance.
e. Bad Debts amount to 5% of Debtors
f. Stock used for private purpose Rs. 6,000.
Unit 4
1. Discuss the provisions of IndAS21regarding the consolidated financial statements.
2. Discuss the provisions of IFRS 10 regarding the consolidated financial statements.
3. Write a detailed note on mergers and acquisitions.
4. Discuss in details holding companies and subsidiary companies.
Unit 5
1. Explain the meaning, method of calculation and method interpretation of liquidity
ratios.
2. Explain the meaning, method of calculation and method interpretation of leverage
ratios.
3. Explain the meaning, method of calculation and method interpretation of profitability
ratios.
4. Explain the meaning, method of calculation and method interpretation of Inventory
Turnover Ratio and Average Collection Period.
5. Explain the meaning, method of calculation and method interpretation of EPS, Diluted
EPS, P/E Ratio and D/P Ratio.
6. Explain the limitation of Ratio Analysis as a tool for analyzing financial statements.
7. Write short notes on –
Age wise analysis of receivables
DSCR
EPS and Diluted EPS
Debt Equity Ratio
Illustrative Problems –
Q. 1
Following are the financial statements of a company –
Income Statement for the year ending 31st March 2018
Rs. Rs.
Sales 7,48,000
Less – Cost of Sales 5,96,000
Gross Profit 1,52,000
Less – Expenses-
Administration Expenses 52,000
Selling Expenses 30,000
Finance Expenses 5,000
Debenture Interest 4,000
Depreciation 8,000
99,000
53,000
Liabilities Rs. Assets Rs.
Share Capital 1,50,000 Fixed Assets 80,000
Reserves 60,000 Stock 1,88,000
Cash Credit from Bank 24,000 Debtors 1,64,000
Debentures 60,000 Cash and Bank 14,000
Current Liabilities 1,52,000
4,46,000 4,46,000
Assuming Face Value of the share to be Rs. 10 and Current Market Value of the share to be Rs.
150, calculate –
a. Current Ratio
b. Liquid Ratio
c. Debt Equity Ratio
d. Inventory Turnover Ratio
e. Average Collection Period
f. ROCE
g. RONW
h. EPS and P/E Ratio
Q. 2
Using the information and format given below, complete the Balance Sheet for a company
having the sales turnover of Rs. 36 Lakhs.
Sales/Total Assets 3
Sales/Fixed Assets 5
Sales/Current Assets 7.5
Sales/Closing Stock 20
Sales/Debtors 15
Current Ratio 2
Total Assets/Net Worth 2.5
Debt/Equity 1
Balance Sheet as on 31st March 2018 –
Liabilities Rs. Assets Rs.
Net Worth - Fixed Assets -
Long Term Debt - Stock -
Current Liabilities - Debtors -
Cash & Bank -
Total - Total -
Q. 3
From the following ratios, you are required to prepare the Balance Sheet as on 31 st March 2018
in as much details as possible.
a. Working Capital Rs. 60,000
b. Reserves Rs. 40,000
c. Bank Cash Credit Rs. 10,000
d. Fixed Assets/Net Worth 0.75
e. Current Ratio 2.5
f. Liquid Ratio 1.5
g. There are no fictitious assets or long term debts.
Unit 6
1. Explain the concept of “Creating Accounting”.
2. Explain the treatment of inventories in Creating Accounting.
3. What do mean by “Leasing”? Explain the terms “Lease Deed” and “Lease Rent” in
connection with the leasing transactions?
4. Discuss the types of lease transactions. Is it a “Off The Balance Sheet mode of financing?
5. Explain the accounting and tax implications of leasing transactions from the point of
view of lessor.
6. Write a detailed note on “Corporate Governance”.
7. What do you mean by the term “Audit”? What are the objectives of Audit? Explain
different types of Audits under different statutes.
8. Explain the provisions of Companies Act, 2013 regarding the Audit and Auditors.
Unit 7
Give short notes (5)
1. Environmental Accounting
2. Social accounting
3. Ethics of Accountants
4. Transition to IFRS
