Project No. On 1st January, 2019, Mr. Amit Sharma decided to open a computer training centre in Delhi. He purchased a commercial complex measuring 300 square feet carpet area ata cost of € 3,50,000 and decided to invest % 3,00,000 as a further capital in the proposed business. He approached Punjab National Bank for loan which agreed to provide 80% loan of the cost of computers. He bought 25 computers of HCL costing 30,000 each. He paid € 1,50,000 and P.N. Bank financed the remaining 80% amount of € 6,00,000 @10% p.a. The loan was payable in 4 annual instalment along with interest due. The transactions during the year were : Scanned with CamScannerject Work 627 peje Work Fa (a a | Purchased Furniture | se fSlae 1 Fees received from students 40,000 | Bought computer stationery 5,90,000 gale of Computer Stationery 1,70,000 at "50000 salaries paid : 20.08 on ars “e700 Advertisement Za Postage and Call asia } SSA 6000 | Insurance Premium oo Bought Printer Machine 30,000, ||| | } Fie withdrew & 7,000 p.m. as drawing and repaid the annual instalment of sankkloan along with interest due on 31st December 2018, Assume all transactions Jace through PN. Bank. Youare required to: fer considering the following information : er and furniture @ 10% p.2. | took pl (1) Journalise these transactions a (i) Depreciate building by 5% and comput (ii) Salary unpaid & 9,000 (iii) Advertisement includes unissued material worth ® 4,000. | (iv) Insurance prepaid & 1,500. (o) Stock of computer stationery © 19,500. || | (2) Post them into ledger and prepare Trial Balance.” .ded 31st. December, 2019. (@) Prepare financial statements for the Yea" & (4) Mz. Amit Sharma wishes to expand his business further so he approached his banker forloan. What ratios should hhisbanker consider before providing Toan considering that similar firms earn 60% as Gross Profit and 17% as Net Profit. Solution. The Project Work involves the followings (Planning) : (a) toprepare accounting records of Mr. AmitSharma for the accounting year | 2019. | () to prepare Trial Balance and his financial statements (0 tofind profitability ratios and solvency ratios. (d) to find out whether he will get bank Joan or not. Necessary data is given to complete the Project Work. Execution of Project Work (i) Preparation of Journal, Ledger (i) Preparation of financial statemé 2019. ; Computation of gross profit ratio, net profit ratio an assess profitability. (iv). Computation of short term. and long term solvent loan be given by bank or not. and Trial Balance. cents for the year ending 31st December, d operating ratio t0 c cy ratios to know whether Scanned with CamScanner‘Analysis of Financial Statements - X11 6.28 @ Books of Mr. Amit Sharma Journal Date | Particulars LE Dr. @)] Cr) 2019 Jan. 1 | Building A/e Dr. 3,50,000 Bank A/e Dr. 3,00,000 To Capital A/e 6,50,000 or capital invested in business) Jan. 1 | Bank A/c Dr. 6,00,000 To 10% Bank Loan 6,00,000 (For loan taken for PN. Bark) : Jan. 1 | Computers A/e Dr. 7,50,000 To Bank A/e 750,000, (or 25 computers purchased @ 30,000 each and bank 7 provided 80% loan) a Jan. 1 | Furniture A/c Dr 40,000 To Bank A/e (For furniture purchased) Bank A/c Dr 5,90,000 To Fees and Sales A/c 5,90,000 (For fee received from computer classes during year) ee eeeEEee Purchases A/c Dr. 1,70,000) To Bank A/c 41,70,000 For stationery purchased for computer) Bank A/c Dr 1,60,000 To Sales A/c 160,000 (For computer stationery sold) Wages A/c Dr. 90,000 Salaties A/c Dr. 1,25,000 Electricity Charges A/c Dr. 47,500) ‘Advertisement A/c Dr. 22,000 Postage & Call A/c Dr. 9,500 General Expenses A/e Dr. 6,000 Insurance A/e Dr. 4,600 To Bank A/e 3)04,600 j (For expenses paid) Printer Machine A/e Dr 30,000 i To Bank 30,000 (For printer purchased) | (For printer punter Drawings A/c Dr. 84,000 f To Bank A/c 84,000 (or drawing made during year) Dr, 60,000 60,000, To Bank Loan A/c (ot Interét due on an loan © 600000'0 10% pa) ‘ Scanned with CamScanner _( gett ______— park Loan A/€ Dr. 2,10,000 To Bank A/e 2,10,000 ‘frst instalment on loan paid along with interest Hor on loan ie. © 1.50000 + 60,000) jation A/e D 1 | Depreciatio 7 96,500 pe To Building A/c 17,500 To Computers A/é 7a Jo Furniture A/¢ 4,000 (for depreciation provided) pee 31| Salaries AZ De 9,000 ‘To Salaries Outstanding A/c 9,000 (For salary due but not paid) px 31 | Stock of Advertisement Ale Dr. 4,000 To Advertisement A/c 4,000 (For stock of advertisement material) Prepaid Insurance A/c Dr 1,500 To Insurance A/¢ 1,500 (For insurance prepaid) ec. 31| Stock of Goods A/c Dr. 19,500 To Purchases A/c 19,500 (For Stock of stationary purchased for computers left) ® Ledger Accounts : Dr Building A/c cr. Date | Particulars -F. () | Date | Particulars HI.F (2) 2019 Jan. 1|To Capital A/c 3,50,000|Dec. 31] By Depreciation A/c 17,500 |Dec. 31] By Balance c/d 3,32,500 350,000 [350,000 2020 ae Jan. 1| To Balance b/d 332,500) De Bank Alc Cr. Date | Particulars LE. @ | Date | Particulars NI-P @ 29 2019 Jan. | To Capital A/e +3,00,000| Jan. 1 | By Computers A/e 750,000 To Bank Loan A/e 6,00,000| Jan. 1 | By Fumiture A/c 40,000 To Fees & Sales A/c 5,90,000| Jan. 1 | By Purchases A/c 1,70,000, To Sales A/e 160,000 By Wages A/c 90,000 By Salaries A/e 125,000 By Electricity Charges A/e 47500 By Advertisement A/e 22,000 By Postage & Call A/e 9,500 By General Expenses A/¢ 6,000 By Insurance A/¢ 4,600 By Printer Machine 30,000 Scanned with CamScannerBy Drawing A/c |; 84,000) By Bank Loan A/c “| |) 2.10,009 ‘Dec. 31] By Balance ¢/d 61400 16,50,000 2020 = : ~ | Sa Jan. 1 | To Balance b/d 11,400 F | Dr. Capital A/c Ch Date | Particulars (&) | “Date | Particulars :F] _@) 2019 2019 Dec. 31] To Balance c/d 6,50,000| Jan. 1) By Building A/c 3,50,000 By Bank A/c 3,00,000 650,000 650,000 { 2020 Jan. 1| By Balance b/d 3] 6.00,000 Dr. Bank Loan A/c Cr. ‘Date | Particulars iB] (@)| Date | Particutars P2019 Vis 0 as |Dec. 31) To Bank A/c /2/10,000) Jan:-1} By Bank A/c ie To Balance c/d 4,50,000| Dec. 31) By Interest A/c 6,60,000] > | 2020 | ~~ Jan. 1} By Balance b/d Dr. Computers A/c a. [ibate | Particulars pF] (&) | Date | Particulars * @ 2019 2019 i Jon..1] To Bank A/c 7,50,000| Dec. 31] By Depreciation A/c > 75,000 Dec. 31) By Balance ¢/d 6,738,000, 750,000) | 2020 pov theta patie | | Jan. 1| To Balance b/d ib:73-000) i eer D Furniture A/c Cr. r. Particulars 3 Ber \coued To Bank A/c 40,000] Dec. 31] By Depreciation A/c 4,000) Dee. 31| By Balance ¢/d 36,000, 000 40,000] i a= To Balance b/d 36,000 i \ 4 Scanned with CamScannerDr. Fees and Sales A/c cr 2019 ec. 31] To Trading Ale 7,50,000} By Bank A/c 5,90,000 By Bank A/c 1,60,000 7,50,000| [750,000 1 Dr. Purchases A/c Cr. ete | Particulars 1.8 2) | Date | Particulars rE] 2019 2019 To Bank A/e 1,70,000] Dec. 31} By Stock of Goods A/c 19,500 By Trading A/c 150,500 1,10,000) 1,10,000 ee Dr. Wages A/c cr. Date | Particulars WF] | Date | Particulars [el @ 2019 2019 To Bank A/c 90,000] Dec. 31] By Trading A/c é Dr. Salaries A/c cr Date | Particulars pF] ©) | Date | Particulars a) 2019 2019 To Bank A/e 1,25,000] Dec. 31] By Profit & Loss A/c 1,34,000 To Salaries Outstancing A/c 9,000} 134,000} Dr Electricity Charges Ale . Date | Particulars 7. (@) | Date | Particulars rele 2019 2019 To Bank Ale 47,500| Dec. 31] By Profit & Loss A/c |_47,500. Dr. Advertisement A/c Cr. Date | Particulars 7. | (@) | Date | Particulars re) oe) 2019 2019 To Bank A/: 22,000| Dee. 31] By Stock of ‘Advertisement A/c 4,000 Dee. 5] By Profit & Loss A/c 18,000 | 22,000 [22000 Scanned with CamScanner |js of Financial Statements ~ XII Analysi Dr. Postage & Call A/c or Date | Particulars a El) 2019 2019 ‘To Bank A/c 9,500| Dee. 31} By Profit & Loss A/c eeesne Dr. General Expenses A/c Cr. Date | Particulars P| (2) | Date | Particulars J. ®) 2019 2019 To Bank A/c 6,000) Dec. 31) By Profit & Loss A/c 6,000. Dr. Insurance A/c io Date | Particulars ]-F] (®) | Date | Particulars JF} @ 2019 “| 2019 . To Bank A/c 4,600| Dec. 31] By Prepaid Insurance A/c 1,500 Dec. 31] By Profit & Loss A/e 3,100 4,600! } 4,600 Dr. Printer Machine A/c cr. ‘Date | Particulars LE (@) | Date | Particulars aes 2019 2019 To Bank A/c 30,000] Dec. 31) By Balance c/d 30,000 2020 ree} Jan. 1] To Balance b/d 30,000) | Dr. Drawings A/c a Date | Particulars pe] @) |) Date | Particutars T pel © 2019 2019 : To Bank A/c 1,44,000| Dec. 31] By Balance ¢/d } 1,44,000 2020 ipa | Jan. 1| To Balance b/d 1,44,000} Dr. Interest on Bank Loan A/c o. Date | Particulars el) | Date | Particutars ar) 2019 2019 ‘Dec. 31) To Bank Loan A/e 60,000] Dec. 31] By Profit & Loss A/c 60,000 Dr. Depreciation A/c & Date | Particulars ).F (%) | Date | Particulars @ | 2019 (2019 (Dee. if To Building A/c 17,500] Dee. 31 By Profit & Loss A/« 96,500, Scanned with CamScanner70 computers A/e 75,000] 0) | ro Furniture A/e 4,000] qt 96,500) 96,500. , {——— . Salaries Outstanding A/c ce. an [ Pacis y-F (@) | Date | Particulars Ea) 2019 2019 | ‘Jo Balance c/d 9,000] Dec. 31) By Salaries A/c 9,000. 2020 maa | Jan. 1 | By Balance b/d 9,000 eH a Stock of Advertisement Ale cr. a Tae | Particulars [rr] ©) | Date [Particulars 2019 2019 Dee. 31] To Adver. A/e 4,000] Dec, 31] By Balance ¢/d 4,000. 2020 Jan. 1] To Balance b/d 4,000} br. Insurance Prepaid A/c cr. Date | Particulars .F. (®)'| Date | Particulars IF @. 2019 2019 ‘Dec, 31] To Insurance A/c 1,500|Dec. 31) By Balance cfd 1,500 2020 Jan 1| To Balance b/d 1,500) Dr. Stock of Goods Alc cr. Date | Particulars B @ | Date [Particulars rE] 2019 2019, Dec. 31{ To Purchases A/e 419,500| Dec. 31] By Profit & Loss A/e 19,500 Trial Balance ason 31st December, 2019 "Name of Ledger Accounts Dr. Bal Cr. Bal. @ @) Building A/e 3,32,500 Bank Ave 61,400 eh Ale 6,50,000 Loan A/e 4,50,000 Computers A/e 6,75,000 inlass A/c 36,000 Sank Sales Ave 7,50,000 Haas Ale 1,50,500 meee 90,000 is A/c 1,34,000 a Scanned with CamScanneresis of Financial Statements — xq lctricty Charges A/c Advertisement A/c 47,500 Postage te Call A/c : 18,000 open ao 9,500 Insurance A/c £000 Printer Machine A/c acy Diving: aj, * 30,000 Interest on Bank Loan A/c ean Depreciation A/c aes Salaries Outstanding A/c mee Stock of Advertisement A/c 7a Prepaid Insurance A/c oe Stock of Goods (31-12. sat 2019) 19,500 859,000 |-18,59,000 8 is i Financial Statements of Amit Sharma in Trading and Profit & Loss A/c . Sor the year ending December 31, 2019 G. ; a Particulars ® Particulars @) To Purchases. A/c 1,50,500 || By Fees and Sales A/e 7,50,000 To Wages A/c 90,000 To Gross Profit c/d 5,09,500 : 7,50,000 750,000 To Salaries A/c 1,34,000 |) By Gross Profit b/d 509,500 To Electricity Charges 47,500 ‘To Advertisement A/c 18,000 ‘To Postage & Call A/c 9,500 ‘To General Expenses A/c 6,000 To Insurance A/c 300: 7 ‘To Interest on Bank Loan 60,000 ‘To Depreciation A/c Building Ye Computers 75,000 Furiture 4000} 96,500 ‘To Net Profit a8 900 509,500 5.09500 Balance Sheet ‘for the year ended on 31st December, 2019 Liabilities oT ae = 5 9,000 |] Bank Ghai j standin eel ae 4,50,000 || Prepaid Insurance ue Bank Loan 6,50,000| ~ Stock of Goods eM ern ci eneneon Stock of Advertisement 4,000 ‘Add : Ne raataoo| Building A/c (less Depreciation) | 3 32,500 oo 2 ee Scanned with CamScanneras: Drawings (84,000) | 7,00, ‘Computers (less Dep) a ) 75,000) pee ture (less Dep.) "36,000 ter Machine 30,000 [2.59.90 17,59,900 (@ Banker should consider the following ratios before providi Profitability Ratios: efore providing loan . - Gross Profit rien Nt (a) Gross Profit Ratio = "et Revenue fom Operations “1° 5,09,500 = 750,000 100 = 67-93% Ne Prit___, ) NetProfitRatio = Net Revenue from Operations”? 1,34,900 , 199 = = 750,000 100 = 17-98% (@ Operating Ratio (Cost of Revenue from Operations + Operating Expenses) 199 . Net Revenue from Operations where, {i) Cost of Revenue from Operations = Revenue from Operations ~G-P. = &7,50,000 - 5,09,500 = & 2,40,500 (i) Operating Expenses = Salaries + Eletricity + Advertisement + Postage + General Expenses + Insurance + Depreciation = 8 3,14,600 2,40,500 + 3,14,600 ),. 199 Operating Ratio = (“~~ 7,50,000 _ 5:55:100 199 = 74.01% = 750,000 Comments (1) The Gross Profit Ratio of Mr. ‘Mukesh Nagpal is 6793% against industry standard of 60% which is quite g004. (2) The Net Profit ratio of firmis 17-98% against in isalso good. Solvency Ratios (a) Short-term Solvency Test _ Current Assets_. 86400_ 954.1 Current Ratio = Gurrent Liabilities 159,000 dustry standard of 17%. It Scanned with CamScannerSe ‘Analysis of Financial Statements ~ XII where, ; @ Current Assets = Bank + Prepaid Insurance + Stock of stationery + Stock of Advertisement Material = 61,400 + 1,500 + 19,500 + 4,000 86,400 (i) Current Liabilities = Salary outstanding + Instalment of Bank Loan (to be paid next year) =% 9,000 + 1,50,000 159,000 . . Long Term Loan Debt-E = 2 iquity Ratio Capital _ Bank Loan (after 1 year repayment) m Capital =0-46:1 *°6,50,900 Comments (1) Short term solvency position of firm is very poor as current ratio is hardly 0.54 : 1 against standard ratio of 2 : 1. @) Debt-equity Ratio indicates that long term borrowing is only 0-46 : 1 against standard ratio 2 : 1 so loan be granted by bank but firm should improve its current ratio as it i Scanned with CamScanner