Question No.

1
Minal had recently started managing her family business. She saw the financial statements her accountant had
and was confused about “Trade Receivables” and “Unearned Revenue”. She asks her friend Rahul who is pursui
explain these terms to her. How should Rahul explain these terms to Minal?

(3 Marks)

Trade Receivables: Unearned Revenue:

Represents amounts Represents cash received from

recoverable from customers as
on the reporting date for goods
sold/services provided to them
earlier. Is a current asset & will
lead to inflow of economic
resources on settlement.
customers against which
goods/services have not been
provided as on the reporting
date. Is a current liability & is
generally settled by providing
the goods/services.
ements her accountant had prepared
r friend Rahul who is pursuing MBA to

Marks
Obtained

Evaluator's comments:
 Question No.2
TAPMI paid Rs 300,000 on 1st September 2020 for a 3-year subscription to a database PRIME who provided finan
data on Indian companies for research pursuits of faculty. How should this be reported in the financials of PRIM
detail for all relevant reporting periods.

The dual aspect on various dates will be as follows:

Cash Revenue
Date

9/1/2020
300,000

3/31/2021 58,333
3/31/2022 100,000
3/31/2023 100,000
8/31/2023 41,667
n to a database PRIME who provided financial & qualitative
Marks
this be reported in the financials of PRIME. Explain in Obtained

(3 Marks) Evaluator's comments:

ollows:

Unearned Revenue
Unearned Revenue
balance as on 31/03
300,000 300,000
-58,333 241,667
-100,000 141,667
-100,000 41,667
-41,667 -
 Question No.3
Current Ratio of X ltd is 1.5 on 1st March 2021. The banker needs the ratio to be maintained at 1.75
or above at every year end. Suggest 2 ethical & practical means through which X Ltd can meet the
target.

1 Increase production
2 Increase sales
3 Sell obsolete/non-current assets available for sale
4 Sell short term investments (classified as current assets) at a profit
5 Pay trade payables/other current liabilities
 Marks
Obtained

(2 Marks) Evaluator's comments:

 Question No.4

In 2019-20 the sales were Rs 30,00,000 and average collection period was 30 days. During 2020-21 the sales increas
collection period increasing to 45 days. What is the quantifiable impact of this on the Cash Flow from Operations?
 Question No.4

In 2019-20 the sales were Rs 30,00,000 and average collection period was 30 days. During 2020-21 the sales increased by 10%
collection period increasing to 45 days. What is the quantifiable impact of this on the Cash Flow from Operations?

Receivables as on 31/03/2020
Receivables as on 31/03/2021
Increase in Trade Receivables (leading to negative impact on Cash Flow from Operating Activities)
 Marks
Obtained
e sales increased by 10% due to the average
Operations?
Evaluator's comments:

(2 Marks)

250,000
412,500
162,500
 Question No.5

Refer to the data for EP Ltd and calculate the specified ratios. Comment on the performance of the company.

2020 2019
ASSETS

Net Property, Plant and Equipment 136,640 145,215

Intangible Assets 27,400 23,200
Long Term Investments 82,695 80,792
Inventories 115,681 97,272
Trade Receivables 18,178 16,175
Cash and Cash Equivalents 1,054 2,170
Short Term Investments 19,893 18,883
TOTAL ASSETS 401,541 383,707
EQUITY AND LIABILITIES
Equity Share Capital 1,770 1,770
Other Equity 169,605 169,580
Long Term Borrowings 95,702 72,728
Trade Payables 43,627 40,807
Expenses Payable 90,837 98,822
TOTAL EQUITY AND LIABILITIES 401,541 383,707

INCOME STATEMENT 2020 2019

Revenues from Operations 187,488 185,503
Dividend & Interest Income 14,069 19,141
Materials Consumed 127,605 137,662
Employee benefits expense 15,961 14,544
Finance costs 13,566 11,343
Depreciation and amortisation expense 11,956 11,377
Other SGA expenses 28,473 25,409
PBT 3,996 4,309
Tax 1,199 1,293
PAT 2,797 3,016
 Marks
Obtained

mance of the company.

(10+5 = 15 marks) Evaluator's comments:

2020 2019 Profitability:

OPM 1.86 -1.88 1.07% yoy sales growth
NPM 1.49 1.63 decline in financial income & cost of materials consumed
Current Ratio 1.15 0.96 increase employee expenses, other SGA & finance costs
Quick Ratio 0.29 0.27 reduction in material costs offsetting other increases lea
Asset Turnover 0.47 0.48 very low profit margins
Return on Equity 1.63 1.76
Interest Coverage 1.29 1.38 Liquidity
Debt/Equity 0.56 0.42 small Improvement in current & constant quick ratio
Receivable Days 34.90 31.39 yet both far from ideal/expected, concerns about ability
Inventory Days 326.36 254.38 very low cash balance
current assets mainly comprising of inventories - huge in
marginal increase in receivable days

1.07
7.50 10.32 Solvency:
68.06 74.21 Increase in LTD - leading to increase in interest expenses
8.51 7.84 reduction in EBIT & increase in interest leading to declin
7.24 6.11 overall very low leverage
6.38 6.13
15.19 13.70 Asset Use:
2.13 2.32 Reduction in Net PPE & Intangibles but increase in Curre
0.64 0.70 increase in assets greater than increase in sales - so lowe
1.49 1.63
RoE
decline in margins, constant asset t/o but increase in lev
st of materials consumed
her SGA & finance costs
tting other increases leading to +ve OPM, however overall increase in all other expenses leading to decline in NPM

constant quick ratio

d, concerns about ability to settle short term obligations

g of inventories - huge increase in holding period

ease in interest expenses too

nterest leading to decline in ICR

les but increase in Current Assets

ncrease in sales - so lower Asset t/o

et t/o but increase in leverage - leading to decline in RoE

 Question No.6

SNACK TIME LIMITED

Keerti & Keshav batchmates at a leading B-school noticed that the store on their campus sold a lot of unhealthy p
There were no options for healthy snacking. They checked with their friends about situation on other campuses,
clubs etc and found the same situation. They also felt that there was an untapped market for snacks which were
preservatives and used local ingredients.

After graduation Keerti & Keshav setup “Snack Time Ltd” to distribute healthy packaged snacks manufactured by
firm “Taste of Nature”. The products would be distributed through vending machines placed at college campuses
multiplexes, fitness centres, local markets in various tier 1 and 2 cities across India. Snack Time Ltd. (STL) was setu
2020 with an initial share capital of Rs 300,000 contributed equally by Keerti & Keshav.

On 1st May a bank loan of Rs 225,000 was sanctioned by AZN Bank. The loan carried an interest rate of 12% per an
principal amount was to be repaid in 8 equal instalments. The instalment of principal & interest was due on 1 st M

A building was purchased on 1st May 2020. The building cost Rs 300,000 and was to be depreciated using SLM ove
20 years at end of which a salvage value of Rs 25,000 was expected.

Other office equipment & furniture costing Rs 25,000 was purchased on 1 st May 2020. These were expected
to be used for 10 years. No salvage value was expected and was to be depreciated using SLM.

Products were sold through customised vending machines owned & operated by STL. 150 machines were purcha
each and Rs 125 was spent on installation of each. These were ready for use from 1 st June. Additional 200 machin
purchased on 1st Jan 2021 for Rs 1400 each including installation. Each of these machines was expected to have a
Rs 100 at end of useful life of 8 years. During the year a sum of Rs 1050 was spent on minor repairs to some of th
The vending machines were to be depreciated using WDV.

Details of inventory purchases by STL from “Taste of Nature” (ToN) during the year are as follows.

Date of Invoice & Shipping by Date of Payment by

Number of Units Price/ut (Rs.)
ToN STL
5/2/2020 6/1/2020 275,000 3.00
8/10/2020 9/5/2020 613,000 3.25
11/13/2020 11/21/2020 300,000 3.75
2/20/2021 3/1/2021 200,000 3.40
3/25/2021 Not yet paid 105,000 3.80
All purchases were on FOB Shipping basis, 2/10 net 30. Discount period was effective from date of invoice. STL us
Inventory system and weighted average method to value unsold inventory of 100,000 units.

70% of sales were cash sales through the vending machines. Each pack was sold for Rs 5 per unit. The rest of the
canteens etc at Rs 4 per pack and a credit period of 30 days was allowed to such customers. As on 31 st March 202
was yet to be recovered from these customers.

STL employed 5 part-time vending machine operators from 1 st June 2020 and additional 7 operators from 1 st Janu
Rs 1,000 per month which was paid at the end of each month. Sales salaries for the year amounted to Rs 60,000 o
been paid by 31st March 2021. Other administrative salaries for the year amounted to Rs 180,000 of which Rs 20,
31st March 2021. Other SGA expenses for the year were Rs 200,000.

On 1st January 2021, STL used Rs 500,000 to invest in shares of “Healthy & Tasty”.

Tax rate was 35% and was to be paid in May 2021.

Prepare financial statements for STL for the year 2020-21. Income Statement, Balance Sheet and Statement of Ca
Indirect Method.
 Marks
Obtained

mpus sold a lot of unhealthy packaged snacks.

tuation on other campuses, malls, sports Evaluator's comments:
arket for snacks which were healthy, lacked

ged snacks manufactured by a Kerala based

s placed at college campuses, malls, (10+10+10 = 30 Marks)
nack Time Ltd. (STL) was setup on 1 st April
av.

an interest rate of 12% per annum. The

l & interest was due on 1 st May every year.

be depreciated using SLM over a useful life of

0. These were expected

sing SLM.

. 150 machines were purchased for Rs 1200

June. Additional 200 machines were
hines was expected to have a salvage value of
n minor repairs to some of these machines.

re as follows.
e from date of invoice. STL used a Period
0 units.

Rs 5 per unit. The rest of the sales were to college

tomers. As on 31 st March 2021, only 25% of the amount

nal 7 operators from 1 st January 2021. Their salary was

year amounted to Rs 60,000 of which Rs 5,000 had not
o Rs 180,000 of which Rs 20,000 had not been paid by

e Sheet and Statement of Cash Flows using

 SC Cash Loan Int Int Acc Bldng
300,000 300,000
225,000 225,000 24,750 24,750
-300,000 300,000
27.60% -198,750
28.10% -280,000
-1,050
-25,000
-4,586,150

6,129,200
-71,000
-55,000
-160,000
-200,000
-500,000
300,000 277,250 225,000 24,750 24,750 300,000
 Acc
Depn
Acc Depn Acc Depn - Off E
-Bldng VM VM Off E&F &F Depn Repairs

12,604 12,604
198,750 45,717 45,717
280,000 19,669 19,669
1,050
25,000 2,292 2,292

12,604 478,750 65,386 25,000 2,292 80,282 1,050

-
 Invty Trd Pybl CoGS Sales Trd Recb Salry Exp Pybl

4,985,150 399,000
-4,651,248 4,651,248
6,547,100 417,900
71,000
60,000 5,000
180,000 20,000

333,902 399,000 4,651,248 6,547,100 417,900 311,000 25,000

SGA Invest

200,000
500,000
200,000 500,000
 Date of
Date of
Invoice & Number of Price/ut
Payment by
Shipping by Units (Rs.)
STL
ToN
Cash Pybl
5/2/2020 6/1/2020 275,000 3.00 825,000
8/10/2020 9/5/2020 613,000 3.25 1,992,250
11/13/2020 11/21/2020 300,000 3.75 1,102,500
2/20/2021 3/1/2021 200,000 3.40 666,400
3/25/2021 Not yet paid 105,000 3.80 399,000
Purch 1,493,000 3.34 4,985,150 4,586,150 399,000
Inv 100,000 3.34 333,902
CoGS 1,393,000 3.34 4,651,248

Cash 4,875,500
Credit 1,671,600 1,253,700
417,900

Sales 6,547,100
Cash 6,129,200
Recb 417,900
Revenue 6,547,100
CoGS 4,651,248
Salaries 311,000
SGA 200,000
Repairs 1,050
Depreciation 80,282
Interest 24,750 5,268,330
PBT 1,278,770
Tax 447,569
PAT 831,200
Share Capital 300,000 Net Building 287,396
Retain Earnings 831,200 Net Vending Machine 413,364
Bank Loan 225,000 Net Office Equipment 22,708
Interest Accrued on Loan 24,750 Investments 500,000
Trade Payables 399,000 Inventory 333,902
Expenses Payable 25,000 Trade Receivables 417,900
Tax Payable 447,569 Cash & Bank 277,250
2,252,520 2,252,520
OCF
PBT 1,278,770
Int 24,750
Depn 80,282
Incr Invtry -333,902
Incr Recb -417,900
Incr Trd Pybl 399,000
Incr Exp Pybl 25,000
NET OCF 1,056,000

ICF
Bldg -300,000
VM -478,750
OE -25,000
Invest -500,000
NET ICF -1,303,750

FCF
SC 300,000
Loan 225,000
NET FCF 525,000

Opng Cash -
Change in Cash 277,250
Clsg Cash 277,250 -