FINANCIAL ACCOUNTING AND ANALYSIS

Question 1:

The cash flow statement depicts the cash flows that happened over the course of the period, as
well as the cash flows that arose from the business's investment and financing operations. The
cash flow statement separates cash flows from operational, finance, and investment operations.

OPERATING ACTIVITIES: These are the activities that bring in the most money for a
corporation. It includes the monetary effects of transactions and events on whether the net profit
or loss is positive or negative (except profit or loss on sales of fixed assets). Cash revenues from
the sale of products or the supply of services, cash payments to suppliers for goods and services,
and cash payments to a third party on behalf of a third party are all examples of cash revenues.

INVESTING ACTIVITIES: Buying and selling long-term assets and other investments not
included in cash equivalents are examples of these operations. Examples include cash payments
for the purchase of property, plant and equipment, intangible and other long-term assets, cash
advances and loans to third parties, and cash income from the sale of property, plant and
equipment, intangible and other long-term assets.

FINANCING ACTIVITIES: Changes in the size and substance of a business's owner's capital
and borrowings are referred to as these activities. Profits from the selling of stocks or other
equity instruments, loan repayments, and so on are all cash transactions.

In the Statement of Profit and

Loss on sale of asset – 95,780
Dividend income – 26,000
Interest income – 35,000
Operating Activities
Investing Activities
Investing Activities
Loss, it is shown as an
expense. The loss on asset
sale is refunded to Net Profit
before Taxes and
Extraordinary Items. As a
result, it is a non-cash activity
and hence an operational
activity.
These are receipts from non-
operating activities that are
tied to investments for non-
financing firms. They are
subtracted from Net Profit
before Tax and Extraordinary
Items and presented as cash
inflows under Investing
Activities.
These are revenues connected
to investments from non-
operating operations for non-
 financing corporations. They
are subtracted from Net Profit
before Tax and Extraordinary
Items and reported as cash
inflows under Investing
Activities.
Interest charges are
Finance cost paid on Financing Activities sometimes referred to as
debentures – 12,000 finance costs. They refer to
the cost of borrowing money
for a short period of time.
Because it is a non-operating
expenditure, it is deducted
from financing activities and
added to operating operations.
The gain on the sale of an
Gain on sale of investment – Investing Activities investment is shown as Other
45,000 Income on the Income
Statement, and it is subtracted
from Net Profit before Tax
and Extraordinary Items.
Under Investing Activity,
gross receipts are represented
as Inflow of Cash.
Depreciation is a non-cash
Depreciation on fixed assets – Operating Activities item that is shown on the
85,000 income statement. Because it
does not entail payment, or a
cash outflow, it is included in
Net Profit before Tax and
Extraordinary Items. As a
result, it is a operating
activity.
Amortization expenditure is a
Amortization expenses – Operating Activities non-cash item that is added to
1,10,000 Net Profit before Tax and
Extraordinary Items since it
does not need payment. As a
result, it is a operating
activity.

Cash Flow from Operating Activities is:

Cash Flow From Operating Activities
Net Profit before Tax and Extraordinary Items 2,69,244
Add: Non cash and operating expenses
+ Loss on sale of asset 95,780

- Interest on investment (35,000)

- Gain on sale of investment (45,000)

+ Finance cost paid on debentures 12,000

+ Depreciation of fixed assets 85,000
+ Amortization expense 1,10,000
- Dividend Income (26,000)
Cash Flow from Operating Activities 4,66,024
Question 2:

A approach for examining financial statements that reveals fluctuations in the quantities of
relevant financial statement components over time is trend analysis (also known as horizontal
analysis). It is an excellent tool for analyzing trends.

Comparative balance sheet analysis is the study of the trend of the same items, groupings of
items, and computed things in two or more Balance Sheets of the same commercial business on
different dates. It's used to compare assets, liabilities, and capital to see if they've risen or
reduced over time. It is a horizontal balance sheet examination that looks at each asset, equity,
and obligation item for two or more accounting periods. This form of research typically yields a
large quantity of data that may be used to make a decision about a company's growth. A
comparative balance sheet has six columns:
First Column: The components or elements of the balance sheet are written in this column.
Second Column: The note number assigned to the line item in the balance sheet is indicated in
this column.
Third Column: Amounts from the prior year are written in this column.
Fourth Column: The current year's sum is indicated in this column.
Fifth Column: Differences (increases or decreases) in quantities between the current and prior
years are computed in this column.
Sixth Column: The difference amount in columns 5 is stated as a percentage in this column, with
the previous year's amount as the base.

Percentage Change = Absolute Change

Amount of Previous Year
X 100
Comparative Balance Sheet of Reliance Industries :
Particulars Not Mar'21 Mar'20 Difference Percentage
e (A) (B) (C= A-B) Change
No. D= C
B X 100

Liabilities

Share Capital 6445.00 6340.00 105.00 1.65

Reserves & Surplus 468038.00 384875.00 83163.00 21.60

Net Worth 474483.00 391215.00 83268.00 21.28

Secured Loan 10832.00 36949.00 (26117.00) (70.68)

Unsecured Loan 182918.00 217352.00 (34434.00) (15.84)

TOTAL LIABILITIES 668233.00 645516.00 22717.00 3.51

Gross Block 439262.00 433848.00 5414.00 1.24

(-) Acc. Depreciation 132429.00 127370.00 5059.00 3.97

Net Block 306833.00 306478.00 355.00 0.11

Capital Work in Progress 32835.00 27965.00 60800.00 217.41

Investments 347285.00 491823.00 (144538.00) (29.38)

Inventories 37437.00 38802.00 (1365.00) (3.51)

Sundry Debtors 4159.00 7483.00 (3324.00) (44.42)

Cash and Bank 5573.00 8485.00 (2912.00) (34.31)

Loans and Advances 139551.00 90663.00 48888.00 53.92

Total Current Assets 186720.00 145433.00 41287.00 28.38

Current Liabilities 203040.00 323700.00 (120660.00) (37.27)

Provisions 2400.00 2483.00 (83.00) (3.34)

Total Current Liabilities 205440.00 326183.00 (120743) (37.01)

NET CURRENT ASSETS -18720.00 -180750.00 162030.00 (89.64)

Misc. Expenses .00 .00 .00 .00

TOTAL ASSETS(A+B+C+D+E) 668233.00 645516.00 22717.00 3.51

Question 3 (a):

Accounts can be classified as:

Personal Accounts: These accounts detail transactions with customers, suppliers, money lenders,
banks, and the business's owner. These accounts are linked to a certain individual.

Real Accounts: These accounts pertain to the company's assets, such as the building, land, and
cash.

Nominal Accounts: In the books, these accounts are available to explain costs and incomes. For
example, where does cash go when salaries are paid, rent is paid, and commissions are paid? All
costs, losses, revenue, and profits are recorded in nominal accounts. Because these accounts are
transferred to Trading or Profit/Loss Account at the end of the year, they are referred to as
notional accounts.

Transactions Accounts Involved Type of Account Effect

Cash Account Real Account Increase

Started business with
cash Rs. 1,50,000 Capital Account Personal Account Increase

Purchases Account Nominal Account Increased

Purchased goods for
cash Rs. 25,000 Cash Account Real Account Decreased

C’s Account Personal Account Decreased

Sold goods to C on
credit Rs. 20,000 Sales Nominal Account Increased

Salary Account Nominal Account Increased

Paid salary for cash
Rs. 15,000 Cash Account Real Account Decreased
 Bank Account Real Account Increased
Deposited cash into
bank account Rs. Cash Account Real Account Decreased
1,00,000
Question 3 (b):
Journal entries are passed according to Golden Rule of Accounting. Golden Rules for Journal
entry:
Type of Account Golden Rules
Debit what comes in
Real Account
Credit what goes out
Debit the receiver
Personal Account
Credit the giver
Debit all expenses and losses
Nominal Account
Credit all incomes and gains
Explanation
Debit the account of thing
which comes in and credit
the account of the thing that
goes out. For eg. When cash
is used to purchase furniture,
the furniture account is a
real account that will be
debited when furniture is
delivered, and the cash
account is a real account that
will be credited as cash is
disbursed.
Debit the account of the
person who receives and
credit the account of the
person who gives. For eg.
When items are purchased
on credit from Ram, because
Ram's account is a personal
account and he is the
provider, his account will be
credited, while the
purchasing account will be
debited once the products
are received.
Debit the accounts of
expenses and losses and
credit the accounts of
incomes and gains. For eg.
Salary account is a nominal
account, and salary is a
business expenditure, hence
salary account will be
debited when salaries are
paid to workers. Because the
cash account is a real
account, it will be credited
when money is sent.
Journal Entry:

JOURNAL

Date Particulars L.F. Debit Credit

March 1, 2021 Cash Account ..Dr 1,50,000

To Capital Account 1,50,000

(being cash invested by Mr Akbar in
business)

March 2, 2021 Purchases Account ..Dr 25,000

To Cash Account 25,000

(being goods purchased for cash)

March 4, 2021 C’s Account ..Dr 20,000

To Sales Account 20,000

(being goods sold on credit to C)

March 7, 2021 Salary Account ..Dr 15,000

To Cash Account 15,000

(being salaries paid for cash)

March 10, 2021 Bank Account ..Dr 1,00,000

To Cash Account 1,00,000

(being cash deposited in the bank)