Q 1 Compute cash from operations from the following details :  (Marks 3)

Ans 1  

Q 2 Explain briefly the meaning and significance of (i) Return on Investment, and (ii) Fixed Assets Turnover Ratio.  (Marks 4)
Ans 12 Meaning and significance of :
(i) Return on Investment :
The overall performance of a business is judged by this ratio which is a measure of relationship between profit earned and capital employed. It ascertains how much income the use of Rs. 100 of capital generates. The ratio is expressed as % .
It is calculated as:
Profit before Interest and tax x 100
       Capital employed
Where capital employed = Share capital + Reserve + Long term loan - Fictitious assets and non-operating assets.
ROI is a fair measure of the profitability of any concern which also helps in comparing performance efficiency of different industries.

(ii) Fixed Assets Turnover Ratio :
This ratio measures the relationship between cost of goods sold and the Net fixed assets = (Cost of goods sold)/(Net fixed assets)
Net fixed assets = Fixed assets - Depreciation
This ratio indicates how efficient the fixed assets are being utilised. Compared with the previous year, if there is an increase in the ratio, it indicates that there is better utilisation of fixed assets. A fall in the ratio shows vice versa.

Q 3 Prepare a Comparative Income Statement from the following information:   (Marks 5)

Ans 3

Comparative Income statement
for the year ended 1992 and 1993

* figures in bracket indicates negative figure

Q4)  The Debt-Equity ratio of X Ltd. is 1 : 2. Which of the following would increase, decrease or not change the debt-equity ratio:
(a) Issue of Equity Shares, (b) Cash received from Debtors, (c) Sale of goods on cash basis, (d) Redemption of Debentures, (e) Purchases of goods on credit.  (Marks 5)
Ans 4 As the Debt Equity ratio is given as 1 : 2
Assuming, Debt = 1000 and Equity = 2000
(a) Issue of equity shares :
Assuming equity worth 500 are issued 
Thus the new ratio = 1000/2500 = .4 : 1
Thus, the ratio will decrease.

(b) Cash received from debtors :
This transaction will neither affect debt nor equity. Hence there will be no change in the ratio.

(c) Sales of goods on cash :
If the sale has lead to a profit, it will increase the equity and hence decrease the ratio.

(d) Redemption of debentures :
Assuming 500 worth debentures are redeemed.
Thus the new ratio = 500/2000 = .25 : 1
Hence, the ratio will decrease

(e) Purchase of goods on credit :
This transaction will not change the ratio as only the current liabilities will increase without any change in either debt or equity.

Q 5)  What is meant by analysis of financial statements? How is it important from the viewpoint of creditors and management? 
(Marks 6)

Ans 15 Analysis of financial statements :
This is a systematic process of analysing and evaluating the relationship between the various parts of financial statements. It is an attempt to determine the significance and meaning of financial data to make forecast regarding future earnings, ability to pay interest, profitability and the likes.

Management :
The management of a firm is basically interested in solvency, profitability and the capital structure of the firm. They have to insure that the business must be able to pay its debts as and when they fall due. Not only are they interested in their current years profit but also in the capacity of the business to earn more future profits. Alongwith, the activity ratio guide them regarding the effective use of resources. Also, they draw significant conclusions about sales, profits, expenses and the likes by comparing the financial statement of their business with those of others.

Creditors :
The short term creditors are interested in knowing the liquidity of the business, i.e. whether significant current assets are there to pay them or not.
The long term creditors are interested not only regarding the repayment of their dues when it falls due but also regarding the consistent payment of interest.

Q 6)  From the following information calculate Stock Turnover Ratio, Operating Ratio and Capital Turnover Ratio :  (Marks 6)

Ans 6  Stock Turnover Ratio = Cost of Goods Sold / Average Stock
Cost of Goods Sold = Opening stock + Purchases + Direct Expenses - Closing stock
= 28000 + 46000 + 4000 - 22000
= 56000

Average Stock = (Opening Stock + Closing Stock)/2
= (28000 + 22000)/2
= 25000
Thus, the ratio = 56000/23000
= 2.24 times 

(ii) Operating Ratio = Cost of Goods Sold + (Operating Exp)/Net sales x 100
= (56000 + 4000 + 2000)/80000 x 100
Net Sales = Sales - Sales Returns
= 90000 - 10000
= 80000
The ratio = 62000/80000 x 100
              = 77.5%

(iii) Capital Turnover Ratio = Net Sales/Capital Employed
= 80000/200000
= .4 times

Q 7 From the following, prepare a Cash Budget for January, February and March, 1998:

Estimated Cash Balance on 1 January 1998 Rs. 10,000. In January a new machinery is to be purchased at Rs. 20,000 on credit, to be paid in two equal installments in February and March.  (Marks 6)

Ans 7  

Cash Budget for the month of Jan - March'1998

Q 8 From the following Balance Sheet, prepare (i) Schedule of Changes in Working Capital and (ii) Funds Flow Statement:

Balance Sheet

Additional information :
(a) Plant costing Rs. 15,000 was sold for Rs. 6,000. Accumulated Depreciation on the same was Rs. 5,000.
(b) No depreciation was provided on Buildings during the year.  (Marks 12)
Ans 18  Working Notes :

Plant A/C

Depreciation Reserve

Adjusted P/L A/C

Schedule of changes in Working Capital

* Prov for tax is taken as current liability

Funds flow statement
for the year ended on 31.12.95