Practice Questions for Practical Exams

Q1 The Second Quarter Report of a company gives following information about segment
performance.
Segment Sales Net Profit
In ` In `
A 5,00,000 20,000
B 15,00,000 80,000
C 8,00,000 30,000
Using Ratio Analysis, comment on the following: (i) Which is the best segment? (ii) Which
segment should be discarded?
Ans.
Net Profit Ratio (%)
Sales Net Profit Net Pr ofit
Segment
In ` In ` = x 100
Re venue From Operations
A 5,00,000 20,000 20,000
X 100 = 4
5,00,000
B 15,00,000 80,000 80,000
X 100 = 5.33
15,00,000

C 8,00,000 30,000 30,000

X 100 = 3.75
8,00,000

i. After analysing the Net Profit Ratio, it is revealed that Segment B performance is best
because its Net Profit Ratio is highest, i.e., Highest Profitability.
ii. Segment C should be discarded as its Net Profit Ratio is lowest, i.e., Lowest
Profitability.
Q2 The Third Quarter Report of a company gives following information about segment
performance.
Segment Sales Net Profit
In ` In `

A 20,00,000 40,000
B 30,00,000 50,000
C 40,00,000 60,000
D 50,00,000 80,000
From the above data, find out which is the best segment and which segment should be
discarded?

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 Ans.
Net Profit Ratio (%)
Sales Net Profit
Segment Net Pr ofit
In ` In ` = x 100
Re venue From Operations

A 20,00,000 40,000 40,000

X 100 = 2
2,00,000

B 30,00,000 50,000 50,000

X 100 =1.67
3,00,000

C 40,00,000 60,000 60,000

X 100 = 1.5
4,00,000

D 50,00,000 80,000 80,000

X 100 =1.6
5,00,000
i. After analyzing the Net Profit Ratio, it is revealed that Segment A performance is best
because its Net Profit Ratio is highest, i.e., Highest Profitability.
ii. Segment C should be discarded as its Net Profit Ratio is lowest, i.e., Lowest
Profitability.
Q3 The Q4 (Quarter IV) report of a company gives following information about its various
segment performance.
Segment Revenue (in `) Net Profit (in `)
A 1,500 300
B 2,500 600
C 800 24
D 1,200 175
Using Ratio Analysis, comment on the following
(i) Which is the best segment?
(ii) Which segment should be discarded?
Ans. Calculation of Profit % to Judge which segment is best.
Segment Revenue (in `) Net Profit (in `) Profit %
A 1,500 300 20
B 2,500 600 24
C 800 24 3
D 1,200 175 14.5

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 i. After analysing the profit %, it is revealed that Segment B performance is very good. It
is the best segment of the company as it is providing 24% of the Net profit.
ii. Segment C should be discarded as it is providing Net profit of 3% only. Resources of
Segment C should be diverted to the other better segments.
Q4 The quarterly report of a company gives the following information about its sales revenue and
profit for the second quarter of the current year and the second quarter of the previous year.
Particulars Q2 Current Year Q2 Previous Year
(Second quarter of 2014-15) (Second quarter of 2013-14)
Revenue from Operations 8,00,000 6,50,000
Net Profit 1,90,000 1,50,000

Which Quarter is performing better? Has the performance improved? Comment using ratios
as tools of your analysis.
Ans.
Particulars Sales Net Profit Net Profit Ratio (%)
(in `) (in `) Net Pr ofit
= x 100
Re venue From Operations

Second Quarter of 2014-15 8,00,000 1,90,000 1,90,000

X 100 = 23.75
8,00,000

Second Quarter of 2013-14 6,50,000 1,50,000 1,50,000

X 100 = 23.08
6,50,000

(i) After analyzing the Net Profit Ratio, it is revealed that the performance of the Second
Quarter of 2014-15 is better because its Net Profit Ratio is higher, i.e., Higher
Profitability.
0.67
(ii) The performance has improved by 0.67 (Absolute terms) and by X 100 = 2.9%
23.08
(Percentage terms)

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Q5 The quarterly report of a company gives the following information about its Sales Revenue
and Profit for the second quarter of the current year and the second quarter of the previous
year:
Particulars Q2 Current Year Q2 Previous Year
(Second quarter of 2014-15) (Second quarter of 2013-14)
Revenue from Operations 15,00,000 12,50,000
Net Profit 2,70,000 2,50,000
Which quarter is performing better? Has the performance improved? Comment using ratios
as tools of your analysis.
Ans.
To judge the performance of Q2 (Second Quarter) of previous and current year, net profit
ratio is calculated as below:
Q2 Current Year (Second Q2 Previous Year (Second
Quarter of 2014-15) Quarter of 2013-14)
Net Profit Ratio = 2,70,000 2,50,000
X 100 =18% X 100 = 20%
Net Pr ofit 15,00,000 12,50,000
X 100
Re venue from Operations

(i) After analysing the Net Profit Ratio, it is revealed that the performance of the Second
Quarter of 2014-15 is not good because its Net Profit Ratio is lower, i.e., Lower
Profitability.
2
(ii) The performance has decreased by 2 (Absolute terms) and by X 100 = 10%
20
(Percentage terms)
Q6 From the following particulars regarding credit sales in 2013-14 and 2014-15, is it correct to
say that cash inflow from collection from debtors has improved in the year 2014-15?
Particulars 2013-14 2014-15
Opening balance of trade receivables 25,000 —
Closing balance of trade receivables 12,000 30,000
Credit sales 1,20,000 2,40,000
Discount allowed 2,000 3,000
Bad Debts 1,000 2,000
Returns inward 3,000 4,000
Or
If only one year's information is given, find out Cash Flow for that year.

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Ans.
For 2013-14:
Trade Receivables A/c
Particulars Amt. (in `) Particulars Amt. (in `)
To bal b/d 25,000 By Discount allowed 2,000
To Credit sales 1,20,000 By Bad Debts 1,000
By Returns inward 3,000
By Cash received from
collections (b.f.) 1,27,000
By bal c/d 12,000
1,45,000 1,45,000
For 2014-15:
Trade Receivables A/c
Particulars Amt. (in `) Particulars Amt. (in `)
To bal b/d 12,000 By Discount allowed 3,000
To Credit sales 2,40,000 By Bad Debts 2,000
By Returns inward 4,000
By Cash received from
collections (b.f.) 2,13,000
By bal c/d 30,000
2,52,000 2,52,000
Yes, collection from debtors has improved in the year ended 2015 by ` 86,000.
OR
For 2013-14:
Trade Receivables A/c
Particulars Amt(in `) Particulars Amt(in `)
To bal b/d 25,000 By Discount allowed 2,000
To Credit sales 1,20,000 By Bad Debts 1,000
By Returns inward 3,000
By Cash received from
collections (b.f.) 1,27,000
By bal c/d 12,000
1,45,000 1,45,000

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 For 2014-15:
Trade Receivables A/c
Particulars Amt. (in `) Particulars Amt(in `)
To bal b/d 12,000 By Discount allowed 3,000
To Credit sales 2,40,000 By Bad Debts 2,000
By Returns inward 4,000
By Cash received from
collections (b.f.) 2,13,000
By bal c/d 30,000
2,52,000 2,52,000
(i) Cash flow from Operating Activities in 2013-14 = Cash received from collections
` 1,27,000
(ii) Cash flow from Operating Activities in 2014-15 = Cash received from collections
` 2,13,000
Q7 The following information relates to credit purchases for two years 2013-14 and 2014-15:
Particulars 2013-14 2014-15
In ` In `
Opening Balance of Trade Payables 1,00,000 -
Closing Balance of Trade Payables 48,000 1,20,00
Credit Purchases 3,60,000 9,60,000
Discount received 6,000 8,000
Return Outward 14,000 6,000
Find out whether the cash outflow has increased or what is the amount of change?
Ans.
Calculate the Cash outflow for 2013-14:
Trade Payables A/c
Particulars Amount Particulars Amount
In ` In `
To Discount Received 6,000 By Balance b/d 1,00,000
To Return Outward 14,000 By Purchases (Credit) 3,60,000
To Cash A/c (Balancing fig) 3,92,000
To Balance c/d 48,000
4,60,000 4,60,000

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 Calculate the Cash outflow for 2014-15:
Trade Payables A/c
Particulars Amount Particulars Amount
In ` In `
To Discount Received 8,000 By Balance b/d 48,000
To Return Outward 6,000 By Purchases (Credit) 9,60,000
To Cash A/c(Balancing fig) 8,74,000
To Balance c/d 1,20,000
10,08,000 10,08,000

Statement showing change in cash outflow:

Particulars 2013-14 2014-15 Absolute change % Change
Cash paid to Trade Payables 3,92,000 8,74,000 4,82,000 122.95

Conclusion:- Cash outflow has increased by 122.95%

Q8 From the following particulars regarding credit sales in 2013-2014 and 2014-2015, is it
correct to say that cash inflow from collection from debtors has improved in the year 2014-
2015?
Particulars 2013-14 2014-15.
In ` In `
Opening balance of trade receivables 50,000 -
Closing balance of trade receivables 24,000 60,000
Credit Revenue from operations 2,40,000 4,80,000
Discount allowed 4,000 6,000
Bad debts 2,000 4,000
Returns Inwards 6,000 8,000

What is the amount of change in cash flows?

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Ans. Cash flow from Debtors for the year ended 2013-14:
Trade Receivables A/c
Particulars Amount Particulars Amount
In ` In `
To Balance b/d 50,000 By Cash (Bal. Fig) 2,54,000
To Credit Revenue from Operations 2,40,000 By Discount Allowed 4,000
By Bad Debts 2,000
By Return Inwards 6,000
By Balance c/d 24,000
2,90,000 2,90,000

Cash flow from Debtors for the year ended 2014-15:

Trade Receivables A/c
Particulars Amount Particulars Amount
In ` In `
To Balance b/d 24,000 By Cash (Bal. Fig) 4,26,000
To Credit Revenue from Operations 4,80,000 By Discount Allowed 6,000
By Bad Debts 4,000
By Return Inwards 8,000
By Balance c/d 60,000
5,04,000 5,04,000

Increase in Cash flow during the year = ` 4,26,000 – ` 2,54,000 = ` 1,72,000

Q9 The following information relates with credit purchases for two years, 2013-14 and 2014-
15.
Particulars 2013-14 2014-15
Opening balance of trade payables 50,000 —
Closing balance of trade payables 24,000 60,000
Credit purchases 2,40,000 4,80,000
Discount received 3,000 4,000
Returns outward 7,000 6,000
Find out whether the cash outflow has increased or what is the amount of change?
Or
If only one year's information is given find out cash flows in that year.

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Ans.
For 2013-14:
Trade Payables A/c
Particulars Amt. (`.) Particulars Amt.( `.)
To Discount received 3,000 By bal b/d 50,000
To Returns outward 7,000 By Credit Purchases 2,40,000
To Cash paid to suppliers (b.f.) 2,56,000
By bal c/d 24,000
2,90,000 2,90,000

For 2014-15:
Trade Payables A/c
Particulars Amt. (`.) Particulars Amt.( `.)
To Discount received 4,000 By bal b/d 24,000
To Returns outward 6,000 By Credit Purchases 4,80,000
To Cash paid to suppliers (b.f.) 4,34,000
By bal c/d 60,000
5,04,000 5,04,000
Yes, cash outflow has increased in the year ended 2015 by Rs.1,78,000.

OR
For 2013-14:
Trade Payables A/c
Particulars Amt. (Rs.) Particulars Amt.(Rs.)
To Discount received 3,000 By bal b/d 50,000
To Returns outward 7,000 By Credit Purchases 2,40,000
To Cash paid to suppliers (b.f.) 2,56,000
By bal c/d 24,000
2,90,000 2,90,000

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 For 2014-15:
Trade Payables A/c
Particulars Amt. (Rs.) Particulars Amt.(Rs.)
To Discount received 4,000 By bal b/d 24,000
To Returns outward 6,000 By Credit Purchases 4,80,000
To Cash paid to suppliers (b.f.) 4,34,000
By bal c/d 60,000
5,04,000 5,04,000

Cash flow from (used in) Operating Activities in 2013-14 = Cash paid to suppliers `. 2,56,000
Cash flow from (used in ) Operating Activities in 2014-15 = Cash paid to suppliers ` 4,34,000
Q 10 Payment of salaries or expenses is an operating outflow. The following information is given
for two years 2013-14 and 2014-15. Find out whether this outflow has increased or
decreased in the year 2014-15 in relative terms.
Particulars 2013-14 2014-15

Salaries outstanding in the beginning 3,000 8,000

Salaries outstanding at the end 8,000 1,000

Pre-paid salaries in the beginning 5,000 4,000

Pre-paid salaries at the end 4,000 6,000

Salaries charged to Profit and Loss Account 40,000 40,000

Ans.
Particulars 2013-14 2014-15
(`) (`.)
Salaries Charged to Profit and Loss Account 40,000 40,000
Add: Salaries outstanding in the beginning 5,000 8,000
Less: Salaries outstanding at the end 8,000 1,000
Less: Prepaid salaries in the beginning 5,000 4,000
Add: Prepaid salaries at the end 4,000 6,000
Salaries paid during the year 36,000 49,000

13,000
The outflow has increased by `13,000 (49,000-36,000), i.e., by 36.11% [ X 100 ].
36,000

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 Q 11 Payment of rent or any expense is an operating outflow. The following information is given
for two years 2013-14 and 2014-15. Find out whether this outflow has increased or
decreased in the year 2014-15 in relative terms.
Particulars 2013-14 2014-15
In ` (Lacs) In ` (Lacs)
Rent outstanding in the beginning 8,000 11,000
Rent outstanding at the end 11,000 4,000
Rent prepaid in the beginning 8,000 7,000
Rent prepaid at the end 7,000 9,000
Rent charged to Statement of Profit & Loss 45,000 45,000

Ans. To know the flow of cash due to rent, rent account is to be prepared for both years:
Rent Account
for the year ended 31st March 2014
Particulars Amount Particulars Amount
In ` In `
To Balance b/d (prepaid in the beg) 8,000 By Balance b/d (o/s in the beg) 8,000
To Bank A/c (Rent paid during the year) 41,000 By Statement of P & L 45,000
To Balance c/d (outstanding at the end) 11,000 (Rent charged)
By Balance c/d (Prepaid at the end) 7,000
60,000 60,000
Rent Account
for the year ended 31st March 2015
Particulars Amount Particulars Amount
In ` In `
To Balance b/d (prepaid in the beg) 7,000 By Balance b/d (o/s in the beg) 11,000
To Bank A/c (Rent paid during the year) 54,000 By Statement of P & L 45,000
To Balance c/d (outstanding at the end) 4,000 (Rent charged) 9,000
By Balance c/d (Prepaid at the end)
65,000 65,000
Rent paid during the previous year = ` 41,000
Rent paid during the current year = ` 54,000
Thus , increase in cash outflow due to Rent during the current year is ` 13,000

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 Q 12 A businessman starts his business with ` 5,00,000. He borrows ` 10,00,000 @ 12% p.a.
from the bank. He bought a machine for ` 4,00,000 and paid rent `12,000 in advance for
two months. He bought goods of ` 1,80,000 for cash. He sold goods for ` 2,00,000 for cash.
He also paid interest on loan for two months. Find out cash flows on account of various
activities.
Ans. Classification of various activities under the head operating, investing and financing activity.
In ` In `
1) Cash flow from Operating Activity.
Goods Sold 2,00,000
Purchase of goods (1,80,000)
Rent Paid (12,000)
Cash Used in Operating Activity (8,000)
2) Cash flow from Investing Activity.
Purchase of Machinery (4,00,000)
Cash Used in Investing Activity (4,00,000)
3) Cash flow from Financing Activity.
Capital Invested 5,00,000
Borrowing of Bank loan 10,00,000
Interest Paid (20,000)
Cash from Financing Activity 14,80,000
Q 13 If credit sales are ` 12,00,000 and cash sales are 20% of Total Sales find out cash flows
from cash sales from operating activities.
Ans.
Credit Sales=` 12,00,000
Cash Sales=20% of Total Sales
Credit Sales=Total Sales -Cash Sales
= 100- 20= 80% of Total Sales
Therefore,
` 12,00,000 = 80% of Total Sales
100
Total Sales= 2,00,000 X = ` 15,00,000
80
20
Cash Sales from Operating activities = 20% of Total Sales= X 15,00,000 = ` 3,00,000.
100

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Q 14 If credit sales are ` 18,00,000 and cash sales are 25% of Total Sales. Find out cash flows
from cash sales under operating activities.
Ans.
Credit Sales = ` 18,00,000
Cash Sales = 25% of Total Sales
Let Total Sales = x
Cash Sales = 25% of x
Credit Sale = Total Sale – Cash Sale
25
`18,00,000 = x - x
100
75
x = ` 18,00,000
100
Total Sale = ` 24,00,000
25
Therefore, Cash Sale = ` 24,00,000 x = ` 6,00,000
100
Q 15 If credit purchases are ` 20,00,000 and cash purchases are 25% of total purchases. Find out
the Cash Flow from operating activities.
Ans. Credit Purchases=Rs.20,00,000
Cash Purchases=25% of Total Purchases
Credit Purchases=Total Purchases -Cash Purchases
= 100- 25= 75% of Total Purchases
Therefore,
20,00,000 = 75% of Total Purchases
100
Total Purchases= 20,00,000 X = ` 26,66,667
75
Cash Purchases from Operating activities = 25% of Total Purchases
25
= X 26,66,667 = ` 6,66,667.
100
Q 16 If Credit purchases are ` 36,00,000 and cash purchases are 25% of total purchases. Find out
the cash flow from operating activities when rent paid is ` 1,50,000 and Commission
received ` 2,50,000.
Ans. Credit Purchases `36,00,000
Cash Purchases are 25% of total purchases
Let Total Purchases = ` x

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 Cash Purchases 25% of x
Credit Purchases = x - 25% of ` x
75
` 36,00,000 =
100
x = ` 48,00,000
Cash Purchases 25% of ` 48,00,000
Cash Purchase = `12,00,000
In ` In `
1) Cash flow from Operating Activity.
Purchase of goods for Cash (12,00,000)
Payment of Rent (1,50,000)
Commission Received 2,50,000
Cash used in Operating Activity (11,00,000)

Q 17 A businessman purchases shirts @ ` 700 each. He fixes a price which is 20% above cost.
He gives a trade discount of 5% for Cash Sales. Sales not given. How much profit he earns
per shirt and to which account will it be credited?
Ans. Profit= `.98, ie, Sales= (700+ 20% of 700) - 5% of 840
Less: Cost= 700
It will be credited to Sales A/c.
Q 18 Ramit bought 200 shares of a company @ ` 16 per share. Out of which he sold 150 shares
@ ` 20 per share. What is the total profit made by him and what is the profit percent and to
which account it will be credited?
Ans. Profit = (Selling Price – Cost Price) x No. of units sold = (20-16) x 150 = Rs.600
Profit Percent = (Profit/ Selling Price) x 100 = 20%
Account to which profit will be credited is Profit and Loss account or Income Statement
Q 19 X and Y went to Stock Exchange. 'X' purchased shares worth `4,000 and sold for ` 4,600.
Y purchased shares for `3,000 and sold them for ` 3,600. Who is a better investor and why?
Ans. X’s profit percentage = (600/4600) x100 = 13.04%
Y’s profit percentage = (600/3600) x100 = 16.67%
Therefore, Y is a better investor.

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Q 20 Shyam and Sunder went to Stock Exchange. Syam purchased shares worth ` 6,000 and sold
for ` 6,600. Sunder purchased shares for ` 5,000 and sold them for ` 5,600. Who is a better
investor and why?
Ans.
Profit % of Ram Profit % of Shyam
600 600
X 100 = 10 % X 100 = 12 %
6000 5000
Since the profit % of Mr. Sunder is more than Mr. Shyam, thus it can be concluded that
Sunder is a better investor
Q 21 Mukesh purchased 100 shares @ ` 120 per share and paid a brokerage of 0.5%. Find out the
total amount spent by him. Give Journal entry for this investment.
Ans. Journal
Date Particulars L.F. Dr. (`.) Cr. (`)
Investment A/c Dr. 12,060
To Bank A/c 12,060
[Being Investments purchased, i.e., (100 x
120) + 0.5% of ` 12,000]
Q 22 Kajal has just completed her jewellery designing course from Pearl Academy, Delhi. She
started her own business of making artificial jewellery. She bought a building for setting up
the factory and office for ` 15 lakhs for which she borrowed a loan from bank @ 18% p.a.
interest. She also bought tools and implements required for manufacturing jewellery for `
35,000 for cash. She also purchased necessary raw material required for making jewellery
for cash ` 50,000.
In the first year she sold jewellery for ` 28,000. Interest on loan is due but not yet paid till
the end of the first year Find out net cash flow from operating, investing and financing
activities and classify the various activities under proper head.
Ans. Classification of various activities under the head Operating, Investing and Financing activity.
In ` In `
1) Cash flow from Operating Activity.
Purchase of raw materials (50,000)
Purchase of Tools and implements (35,000)
Sale of Jewellery 28,000
Cash Used in Operating Activity (57,000)

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 2) Cash flow from Investing Activity.
Purchase of Building (15,00,000)
Cash Used in Investing Activity (15,00,000)
3) Cash flow from Financing Activity.
Borrowing of Bank loan 15,00,000
Cash from Financing Activity 15,00,000
Q 23 Ram was good at making designs. He started making designer garments. He bought a
sewing machine for ` 50,000, spent ` 2,00,000 on its renewal and purchased fabric for `
5,00,000. Find out net Cash Flow from investing and operating activities and identify
the accounts involved.
Ans.
In ` In ` Account
Involved
1) Cash flow from Operating
Activity.
Purchase A/c
Purchase of goods (5,00,000)
Cash Used in Operating Activity (5,00,000)
2) Cash flow from Investing Activity.
Purchase of Machinery (2,50,000) Machinery A/c
Cash Used in Investing Activity (2,50,000)

Q 24 Rahul started business with ` 30,00,000 which he arranged by getting a loan of ` 20 lakhs
from his father and ` 10 lakhs from a bank @ 12% p.a. He bought machines for ` 15 lakhs,
raw material for ` 7,80,000 and paid rent of ` 12,000 during the year.

What percentage of total funds at his disposal has been spent on various activities?

Ans. Cash Flow from Various Activities

In ` In ` %
1) Cash flow from Operating Activity.
Purchase of raw material (7,80,000)
26.4%
Rent paid (12,000)
Cash flow from Operating Activity (7,92,000)

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 2) Cash flow from Investing Activity.
Purchase of Machinery (15,00,000) 50%
Cash Used in Investing Activity (15,00,000)
3) Cash flow from Financing Activity.
Interest paid on Loan 1,20,000 4%
Cash from Financing Activity (1,20,000)
Total Amount Spent 24,12,000 80.4%
24,12,000
X 100
30,00,000

Q 25 A businessman starts his business with ` 10,00,000. He borrows 20 lakh @ 18% p.a. from
the bank. He bought a machine for `8,00,000 and paid rent ` 24,000 in advance for two
months. He bought goods of ` 3,60,000 for cash. He sold goods for ` 4,00,000 for cash. He
also paid interest on loan for two months. Find out cash flows on account of various
activities.
Ans. Cash Flow from Various Activities

Particulars In ` In `
1) Cash flow from Operating Activity.
Purchase of goods for Cash (3,60,000)
Payment of Rent (24,000)
Sale of goods for Cash 4,00,000
Cash flow from Operating Activity 16,000
2) Cash flow from Investing Activity.
Purchase of Machinery (8,00,000)
Cash Used in Investing Activity (8,00,000)

3) Cash flow from Financing Activity.

Capital Contribution 10,00,000
Loan from Bank 20,00,000
Interest paid on Loan for 2 months (60,000)
Cash from Financing Activity 29,40,000

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Q 26 Mr. Kunal and Yuvraj won ` 50 lakh and ` 30 lakh each respectively from a live ‘Dance
Show’ on Television. Mr. Kunal purchased a Building worth ` 40 lakh out of the winning
amount and after 1 year sold it for ` 48 lakh. Whereas Mr. Yuvraj purchased shares of some
company for ` 22 lakh out of the wining amount, which he sold for ` 2 lakh after 2 years.
Who is better investor and why?
Ans. To judge who is a better investor we must find the profit (gain) percentage for both Kunal and
Yuvraj.
For Mr. Kunal
Particulars `
Purchase price of Building 40 Lakh
Sale Price of Building 48 Lakh
Profit 8 Lakh
Profit % 8 Lakh
X 100 = 20%
40 Lakh
For Mr. Yuvraj
Particulars `
Purchase price of Shares 22 Lakh
Sale Price of Shares 24 Lakh
Profit 2 Lakh
Profit % 2 Lakh
X 100 = 9.09%
22 Lakh

Mr. Kunal is a better investor as his gain (20%) is more than the Mr. Yuvraj (9.09%).
Moreover Kunal has sold his investments within one year itself, which shows his liquidity
position is also good as compared to Yuvraj.
Q 27 Following information of Bilochpur Ltd. is given:
Particulars 31.03.14 31.03.15
(in `) (in `)
Revenue from Operations 35,00,000 89,00,000
Gross Profit 8,40,000 18,69,000
Operating Profit 4,90,000 10,68,000
Current Assets 11,20,000 16,40,000
Current Liabilities 5,50,000 9,10,000

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 Mr. Amit Singal, CEO of the company claims that improvement in the profit and working
capital is due to his efficiency, so he should be duly compensated. Do you agree with him? If
not, give reasons.
Ans.
Particulars 31.03.14 31.03.15
(in `) (in `)
Gross Pr ofit ` 8,40,000 ` 18,69,000
Gross Profit Ratio= X 100 X 100 = 24% X 100 = 21%
Re venue from Operations ` 35,00,000 ` 89,00,000
Current Assets ` 11,20,000 ` 16,40,000
Current Ratio = = 2.03 : 1 = 1 .8 : 1
Current Liabilities ` 5,50,000 ` 9,10,000

1) In absolute terms, Revenue from operations has increased but if we compare the Gross
Profit Ratio of 2013-14 and 2014-15, we find that gross margin has declined to 21% in
2014-15 from 24% in 2013-14.
2) The current ratio on 31.03.2014 was 2.03:1 which was good in relation to standard
current ratio of 2 : 1 but it declined to 1.8 : 1 at 2014-15, so short-term financial position
of the company cannot be said to satisfactory.
The above facts reflect the inefficiency of the manager instead of efficiency.
Q 28 Compute Return on Investment and judge the efficiency and profitability of two Companies
A Ltd. and B Ltd. during the year 2014-15:
Particulars A Ltd. B Ltd.
In ` In `
Capital Employed 25,00,000 30,00,000
Net Profit before Tax 5,30,000 6,00,000
Revenue from Operations 26,50,000 29,00,000
Tax Rate is 50%
Ans.
A Ltd. B Ltd.
In ` In `
Net Pr ofit 2,65,000 3,00,000
Net Profit Ratio = X 100 X 100 X 100
Re venue from Operations 26,50,000 29,00,000
= 10% = 10.3%
Net Pr ofit before Interest and Tax 5,30,000 6,00,000
ROI = X 100 X 100 X 100
Capital Employed 25,00,000 30,00,000
= 21.2% = 20%

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Q 29 From the following figures relating to the working of two companies for the year 2014-15,
compare the efficiency of their debt collection department, if they grant a credit of 45 days
(in case of X Ltd.) and 80 days (in case of Y Ltd.) to their customers:
Particulars X Ltd. Y Ltd.
In ` In `
Cash Revenue from Operations 2,00,000 5,00,000
Credit Revenue from Operations 7,00,000 10,00,000
Opening Balance of Trade Receivables 1,20,000 2,80,000
Closing Balance of Trade Receivables 80,000 1,20,000

Ans.
X Ltd. Y Ltd.
In ` In `
Trade Receivables Turnover Ratio = 7,00,000 10,00,000
= =
Net Credit Re venue from Operations 1,20,000 + 80,000 2,80,000 +1,20,000
Average Trade Re ceivables 2 2
7,00,000 10,00,000
= = 7 Times = = 5 Times
1,00,000 2,00,000

Debt Collection Period (in Days) =

365 365
Number of Days in a Year = 52 Days ( approx ) = 73 Days
7 5
Trade Re ceivables Turnover Ratio

After analyzing the above ratios, it is clear that debt collection department of X Ltd. is not
working efficiently as compared to Y Ltd.
Q 30 Amit Ltd. and Sumit Ltd. require bank loan for 3 years to be repaid over a period of 3 years.
Following information is given to you:
Particulars Amit Ltd. Sumit Ltd.
Current Ratio 2.6:1 2:1
Liquid Ratio 1.3:1 1:1
Debt Equity Ratio 1:1 1.3:1
Interest Coverage Ratio 15 times 10 times
Suppose you are a Bank Officer and both the companies have approached the same bank.
Find:

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 a) If you wish to give loan to only one company, which will it be?
b) If you could grant loan to both companies, would you prefer to advance loan to both
the companies. If yes, why?
Ans.
1. Conclusion
1. The current ratio of Amit Ltd is 2.6 : 1 and that of Sumit Ltd is 2 : 1 against the
standard ratio of 2 : 1. Short- term solvency position of both the companies is sound
though Amit Ltd is better placed.
2. The liquid ratio of Amit Ltd is 1.3 : 1 and that of Sumit Ltd is 1 : 1 against the standard
ratio of 1 : 1. Both companies are good but Amit Ltd is better placed.
3. Debt equity ratio of Amit Ltd is 1:1 and that of Sumit Ltd is 1.3 : 1 against the standard
of 2: 1. Both companies prefer to rely less on borrowed fund but still Amit Ltd is
better placed
4. Interest coverage ratio of Amit Ltd is 15 times in relation to 10 times in case of Sumit
Ltd Both are good companies
Decision:
i If loan is given to only one company, it should be given to Amit Ltd as it is
comparatively better in relation to Sumit Ltd.
ii However bank can provide loan to both-the companies as financial position of both the
companies is on Sound footing.
Q 31 Following table gives the actual and standard ratio of Crown Ltd. for the year 2014-15
Particulars Actual Standard
Current Assets/Current liabilities 5 2
Cost of Revenue from Operations/Inventory 2 1
Net Credit Revenue from Operations/Trade Receivables 40 25
Net Profit before Interest and tax/Capital Employed 40 34

Critically examine the above mentioned ratios

Ans.
Current Assets
i) The current ratio (i.e., ) of the company is much higher than the
Current Liabilitie s

standard. Company is comfortable in making timely payment to its creditors.

However, it seems that it is not using its funds effectively. It must invest the surplus
fund in investments so that it may earn interest/dividend on idle fund.

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 ii) The inventory turnover ratio (Cost of revenue from operations) is also higher than the
standard, It indicates that company is rapidly turning over its inventory.
Net Credit Re venue from Operations
iii) Trade Receivables turnover ratio ( ) is also
Trade Re ceivables
higher than the standard ratio It implies that company is efficient in collecting its debt.
Net Pr ofit
iv) Return on Investment ( ) of the company is higher than the
Capital Employed
standard ratio. It means that company is using capital employed effectively. -
Suggestion
The company should try to push its sales so that turnover ratios may improve. Higher sales
will yield higher net profit. It will also improve the return on capital employed.
Q 32 The following comparative percentages are computed from the financial statements of two
companies, XYZ Ltd. and PQR Ltd.
Particulars XYZ Ltd. PQR Ltd.
Net Income to Revenue from Operations 12% 9%
Revenue from operations 80,000 95,000
Net Income to capital Employed 15% 12%
Opening Receivables 10,000 8,000
Closing Receivables 12,000 8,000

Which company appears to be more successful? Give reasons.

Ans. XYZ Ltd is earning more on its Revenue as compared to PQR Ltd.
Rate of Return on Investment of XYZ Ltd is more than PQR Ltd.
This indicates that the overall performance of XYZ Ltd is better than PQR Ltd.
XYZ Ltd is more successful as it is utilizing its investment more efficiently than PQR Ltd.
Q 33 The following particulars are extracted from liabilities side of Balance sheets:
Particulars 31.03.14 31.03.15
(in `) (in `)
4% Debentures 5,00,000 4,00,000
Profit on redemption of Debentures - 4,000
Find out the amount of the redemption for the purpose of cash flow statement.
Ans. Amount of the redemption of debentures is ` 96,000 i.e. ` 1,00,000 - ` 4,000

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Q 34 Mr. Vaibhav after completing his MBA (Finance) from institute of Business Administration
joined a company where he was given a work project to analyze the flow of cash from
operating, investing and financing so as to check his efficiency. He was also asked to
submit report, reflecting whether he is satisfied with the company’s movement of cash.
Particulars (in `)
Operating profit before working capital changes 3,00,000
Cash used in investing activities 1,50,000
Issue of shares for cash 5,00,000
Loan paid off 1,00,000
Trade Receivables in the beginning of the year were ` 2,20,000 and the end of the year `
3,70,000. Trade Payables increased by ` 35,000 during the year. Outstanding rent during the
year ` 2,500.
Ans. Net cash from operating activities is ` 1,87,500, Net cash used in investing activities is (`
1,50,000), Net cash from financing activities is ` 4,00,000.
Reports submitted by Vaibhav
i Cash flow from operating activities is showing a favourable balance which shows the
company will easily pay off the trade payables and rent outstanding in the near future.
ii Favorable cash balances under financing activities and unfavourable balance under
investing activities indicates that fixed assets have been financed through long-term
funds which is a sound financial planning.

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