FACULTY OF BUSINESS AND COMMERCE

DEPARTMENT OF MANAGEMENT
CORPORATE ACCOUNT
BBA - SEM 3
UNIT– 2 ISSUE OF RIGHT SHARES , BUY BACK OF SHARES & ALTERATION IN SHARE CAPITAL
UNIT - 4 RATIO ANALYSIS & ANALYSIS OF FINANCIAL STATEMENTS
UNIT 2 ISSUE OF RIGHT SHARES

INTRODUCTION

 Provisions of section 62(1) (a) govern any company, public or private, desirous of raising its subscribed
share capital by issue of further shares. Whenever a company intends to issue new shares, the voting and
governance rights of the existing shareholders may be diluted, if they are not allowed to preserve them. It
may happen because new shareholders may subscribe to the issued share capital.

 Companies Act, 2013 allows existing shareholders to preserve their position by offering those newly
issued shares at the first instance to them. The existing shareholders are given a right to subscribe these
shares, if they like. However, if they do not desire to subscribe these shares, they are even given the right
to renounce it in favour of someone else (unless the articles of the company prohibits such a right to
renounce).

 In nutshell, the existing shareholders have a right to subscribe to any fresh issue of shares by the
company in proportion to their existing holding for shares. They have an implicit right to renounce this
right in favour of anyone else, or even reject it completely. In other words, the existing shareholders have
right of first © The Institute of Chartered Accountants of India 6.14 ACCOUNTING refusal, i.e., the existing
shareholders enjoy a right to either subscribe for these shares or sell their rights or reject the offer.

Example

Assume a company makes a right issue of 10,000 shares when its existing issued and subscribed capital is 100,000
shares. This enables any shareholder having 10 shares to subscribe to 1 new share. Hence X, an existing shareholder
holding 1,000 shares, may subscribe to 100 shares as a matter of right. The existing share percentage of X was 1%
(1,000 / 100,000). If X subscribes these shares, his percentage holding in the company will be maintained (1,100 /
1,10,000). However, if X does not mind his share % diluting (1,000 / 1,10,000), he may renounce the right in favour of
any one else, say Y. Hence, these 100 shares will be issued to Y, at the insistence of X. X may charge Y for this privilege,
which is technically termed as the value of right.
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RIGHT OF RENUNCIATION

Right of renunciation refers to the right of the shareholder to surrender his right to buy the securities
and transfer such right to any other person. Shareholders that have received right shares have three
choices of what to do with the rights. They can act on the rights and buy more shares as per the
particulars of the rights issue; they can sell them in the market; or they can pass on taking advantage of
their rights (i.e., reject the right offer).

THE VALUE OF RIGHT IS DETERMINED AS GIVEN BELOW:

Value of right = Cum-right value of share – Ex-right value of share ( market price – assumed price)

Ex-right value of the shares or Assumed Price =

[Market price of the existing shares + Issue Price of Right shares]

(Existing Number of shares + Number of right shares)

JOURNAL ENRY FOR RIGHT SHARE

Bank a/c Dr.

To Equity share capital a/c
To Security Premium a/c

EXMPLES
1. A company offers new shares of 100 each at 25% premium to existing shareholders on one for
four bases. The cum-right market price of a share is 150.
Find Out
1.Calculate the value of a right.
2. What should be the ex-right market price of a share (Assumed Price)?
3. If a person hold 24000 share then what could be no. of right share for him, journalize the
transaction.

2. William Ltd. Company is willing to issue new shares to its existing share holders at one
new share for two old share. Cum right market price is Rs. 240. Offer Price is Rs. 120
Find out Value of Right & Ex right market price.

3. Find out Value of Right for following alternatives if market price Rs 150.
Alternatives
1. 5 new shares for 5 old shares at Rs. 100
2. 4 new shares for 5 old shares at Rs. 110
3. 3 new shares for 5 old shares at Rs. 115

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 4. 2 new shares for 5 old shares at Rs. 120
Sum for mixed Journal Entries

The balance sheet of Apollo Ltd. As on 31st March , 2011. Was as under.

Assets Amount Liabilities Amount

Share Capital Free hold properties 2,00,000
Authorised 6,00,000 Stock 2,40,000
Issued 40,000 sh. Of 10 each 4,00,000 Debtors 2,00,000
Profit & Loss a/c 2,40,000 Balance at Bank 4,00,000
5 % Debentures 2,60,000
Creditors 1,40,000
10,40,000 10,40,000

At the Annual Meeting , It was agreed that,

1. To pay dividend at 10% free of tax (Rate of Income tax is 20%)

2. To issue one bonus share for every four old share held.
3. To give option to the existing share holder to purchase one share of Rs. 10 at Rs. 15 Each
for every four shares held Prior to bonus distribution.
4. To repay debentures at 3% Premium.

Give the necessary journal entries of above transaction and prepare the balance sheet
after the transaction.

UNIT 2 BUY BACK OF SHARES

Buy Back of Shares

 As per Section 68 (1) of the Companies Act 2013, buy back of shares can be made out of: its
free reserves; or the securities premium account; or the proceeds of any shares or other
specified securities.
 The buy-back of equity shares in any financial year shall not exceed twenty-five per cent
of its total paid-up equity capital in that financial year.
 There shall be a minimum gap of one year in buyback offer from the date of closure of the
previous buy back.

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Q.1 Buy back at par out of free reserve
A limited has issued Equity Shares capital of Rs. 10,00,000 of Rs.10 each. The balance in the General
Reserve account was Rs. 2,00,000. The company decided to buy back 15% of share capital at Rs. 10 Each.
Pass the journal entries.

1 Equity share capital a/c Dr 1,50,000

To share buy back a/ 1,50,000
(Being amount payable on buy back of 15000 shares at Rs 10)

2 Share buy back a/c Dr 1,50,000

To Bank a/c 1,50,000
(Being payment made on buy back of 15000 shares at Rs 10)

3 General Reserve a/c Dr 1,50,000

To Capital Redemption Reserve a/c 1,50,000
(Being amount equal to nominal value i.e 15000 share at Rs 10 each
transferred to capital redemption reserve)

Q.2 Buy back with premium out of free reserve

A company buy back 35000 equity shares of Rs 10 each at Rs. 20 each. Reserves of the company are as
follows , Pass the journal entries.
1. Security Premium Rs.3,50,000
2. General Reserve Rs.5,00,000

1 Equity share capital a/c Dr (35000*10) 3,50,000

Premium on buy back a/c Dr (35000*10) 3,50,000
To share buy back a/c (35000*20) 7,00,000
(Being amount payable on buy back of 35000 shares at Rs20)

2 Share buy back a/c Dr 7,00,000

To Bank a/c 7,00,000
(Being payment made on buy back of 35000 shares at Rs20)

3 General Reserve a/c Dr 3,50,000

To Capital Redemption Reserve a/c 3,50,000
(Being amount equal to nominal value transferred to capital
redemption reserve a/c)

4 Security Premium a/c Dr 3,50,000

To Premium on buy back a/c 3,50,000
(Being premium on buy back of shared write off against security
premium)

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Q.3 Buy back at premium out of free reserve plus issue of preference shares
A ltd decides to purchase its own 50,000 equity shares of Rs 10 each at Rs.15 per share. Company had a
balance in general reserve of 10,00,000 and bank balance of Rs 8,00,000. In order to buy back its shares
company decided to issue 20,000 9% redeemable preference share of Rs.10 each, which were fully
subscribed an paid up. Make journal entries in books of company.
1 Bank a/c Dr 2,00,000
To 9% redeemable preference share a/c 2,00,000
(Being 20,000 pr.sh issued at Rs 10 each)

2 Equity share capital a/c Dr (50,000*10) 5,00,000

Premium on buy back a/c Dr (50,000*5) 2,50,000
To share buy back a/c (50,000*15) 7,50,000
(Being amount payable on buy back of 50,000 shares at Rs 15)

3 Share buy back a/c Dr 7,50,000

To Bank a/c 7,50,000
(Being payment made on buy back of 50,000 shares at Rs 15)

4 General Reserve a/c Dr 3,00,000

To Capital Redemption Reserve a/c 3,00,000
(Being amount equal to nominal value less fresh issue of pr.sh (5 lack –
2 lack) transferred to capital redemption reserve a/c)

5 General reserve a/c Dr 2,50,000

To Premium on buy back a/c 2,50,000
(Being premium on buy back of shared write off against general
reserve)

Q.4 Buy back at discount out of free reserve plus issue of preference shares
Kuber ltd has issued 80,000 shares of Rs 10 each out of which 18000 shared were bought back at Rs 9
per share. The company issued 9% 900 preference share of Rs. 100 each . The company had balance in
security premium and general reserve Rs. 35,000 and 75,000 respectively. Pass the journal in the book
of account.

1 Bank a/c Dr 90,000

To 9% redeemable peference share a/c 90,000
(Being 900 9% redeemable prsh issued at Rs 100 each)

2 Equity share capital a/c Dr (18,000*10) 1,80,000

To share buy back a/c (18,000*9) 1,62,000
To capital reserve a/c (18000*1) 18,000

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 (Being amount payable on buy back of 18000 shares at Rs 9 and
discount amount is transferred to capital reserve)

3 Share buy back a/c Dr 1,62,000

To Bank a/c 1,62,000
(Being payment made on buy back of 18000 shares at Rs9)

4 General Reserve a/c Dr 55000

Security premium a/c Dr 35000
To Capital Redemption Reserve a/c 90,000
(Being amount equal to nominal value less fresh issue of pr. Sh.
(1,80,000-90,000) transferred to capital redemption reserve a/c)

Q.5 Buy back with other miscellaneous adjustments

The balance sheet of modern marbel as on 31st march 2020 is as follows

Liabilities Amount Assets Amount
Share capital of Rs 10 each 50,00,000 Fixed Assets 66,00,000
General Reserve 6,50,000 Investment 18,00,000
Security Premium 5,40,000 Stock 11,87,000
Profit & Loss a/c 3,75,000 Sundry debtors 9,60,000
12% Debenture 25,00,000 Cash and bank 7,10,000
Term loan 13,25,000
Current liabilities 8,67,000
1,12,57,000 1,12,57,000

The shareholders adopted resolution on mentioned date as follows...

1.Buy back 20% of paid up capital at Rs 15 each.
2.Issue 13% Debentures of Rs 5,00,000 at premium of 10% to finance the buy back of equity shares.
3.Maintain balance of Rs. 3,00,000 In general reserve.
4.Sell investment worth Rs. 8,00,000 in Rs.6,50,000 .
Pass the journal entries and prepare balance sheet after the buy back of shares.
ANSWER
 Company has 5,00,000 Equity shares out of which 20% Equity need to be bought
backi.e5,00,000 * 20% = 1,00,000 shares at Rs 15 each = Rs. 15,00,000
 For which company issued Debentures worth Rs. 5,00,000 at 10% premium
 Total provision for buy of back of equity will be
Nominal value of buy back = 10,00,000
Less nominal value of Debentures issued = 5,00,000
Amt taken from general reserve & p & l = 5,00,000
 Loss on sale of investment 8,00,000-6,50,000 = 1,50,000

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1 Bank account Dr 5,50,000
1 To 13% debenture account 5,00,000
To security premium account 50,000
(Being Debentures of Rs 5,00,000 issued at 10% premium)

2 Equity share capital account Dr (1,00,000*10) 10,00,000

Premium on buy back account Dr (1,00,000*5) 5,00,000
To share buy back account (1,00,000*15) 15,00,000
(Being amount payable on buy back of 1,00,000 shares at Rs 15)

3 Share buy back account Dr 15,00,000

To Bank account 15,00,000
(Being payment made on buy back of 50,000 shares at Rs 15)

4 General Reserve account Dr (6,50,000-3,00,000 min balance) 3,50,000

P & L account account Dr 1,50,000
To Capital Redemption Reserve account 5,00,000
(Being amount equal to nominal value share bought back less fresh
issue of Debentures norminal value only (10,00,000-5,00,000)
transferred to capital redemption reserve a/c)

5 Security premium account Dr 5,00,000

To Premium on buy back account 5,00,000
(Being premium on buy back write off against security premium )

6 Bank account Dr 6,50,000

P & l account Dr 1,50,000
To investment account 8,00,000
(Being investment of Rs 8,00,000 sold at loss of 1,50,000)

Liabilities Amount Assets Amount

Share capital of Rs 10 each 40,00,000 Fixed Assets 66,00,000
General Reserve 3,00,000 Investment 10,00,000
Security Premium 5,40,000 Stock 11,87,000
(5,40,000+50,000-5,00,000)
Profit & Loss a/c 75,000 Sundry debtors 9,60,000
Capital redemption reserve 5,00,000
12% Debenture 25,00,000 Cash and bank 4,10,000
13%Debenture 5,00,000
Term loan 13,25,000
Current liabilities 8,67,000

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 1,12,57,000 1,12,57,000

Cash or Bank Account

Particulars Amount Particulars Amount
To balance b/d 7,10,000 By share buy back account 15,00,000
To investment account 6,50,000 By balance c/f 4,10,000
To 13% Debentures account 5,00,000
To security premium account 50,000
19,10,000 19,10,000

Q.6 Buy back with miscellaneous adjustments

Following is the balance sheet of Sarah Ltd. On 31-03-2020

Liabilities Amount Assets Amount
Share capital 30,000 of Rs 10 2,40,000 Fixed Assets 3,00,000
each , Rs 8 paid up
9% preference shares of Rs 3,60,000 Investment 1,50,000
100 each
General Reserve 40,000 Stock 60,000
Security Premium 20,000 Sundry debtors 1,15,000
Profit & Loss a/c 30,000 Cash at bank 2,00,000
Current liabilities 1,35,000
8,25,000 8,25,000

As per legal provision of company tool all necessary steps To make the buy back of equity shares. Then
company resolved to issue 9% , 600 preference shares of Rs 100 each at par in order to but back 20%
Equity capital of the company. The new preference shares fully subscribed. The company also issued
500, 8% Debentures of Rs 100 each fully paid.
Pass the journal entries an prepare balance sheet.

ANSWER

1. Equity call amount 30,000 * 2 = 60,000

2. Total equity 2,40,000 + 60,000 = 3,00,000
3. Shares buy back = 3,00,000 * 20 % = 60,000

1 Bank account Dr 50,000

To 8% debenture account 50,000
(Being 500 Debentures ofRs 100 eachissued )

2 Bank account Dr 60,000

To preference share capital account 60,000
( Being issue of 9% 600 preference shares at Rs 100 each)

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3 Equity final call account Dr 60,000
To Equity share capital account 60,000
(Being call of Rs 2 on 30,000 shares made)

4 Bank account Dr 60,000

To Equity final call account 60,000
( Being call money of Rs 2 on 30,000 Shared is received)

5 Equity share capital account Dr 60,000

To share buy back account 60,000
(Being amount payable on buy back of 6,000 shares at Rs 10)

6 Share buy back account Dr 60,000

To Bank account 60,000
(Being payment made on buy back of 6000 shares at Rs 10)

Liabilities Amount Assets Amount

Share capital 2,40,000 2,40,000 Fixed Assets 3,00,000
Add called up 60,000
Less buy back 60,000
9% preference shares of Rs 4,20,000 Investment 1,50,000
100 each
(3,60,000+60,000)
General Reserve 40,000 Stock 60,000
Security Premium 20,000 Sundry debtors 1,15,000
Profit & Loss a/c 30,000
8% Debenture 50,000
Current liabilities 1,35,000 Cash at bank 3,10,000
(2,00,000+60,000+60,000+50,000-
60,000)
9,35,000 9,35,000

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 UNIT 2 ALTERATION IN SHARE CAPITAL

The Company which has decided for increasing its Capital, first it need to check the existing Authorised
Share Capital because the Company cannot issue the shares beyond the authorized Share capital
therefore for issuing the shares is required to increase the authorized share capital by altering the
Memorandum of Association of the Company. The Company having the Share Capital may if so
authorized by the Article of Association can alter the Share Capital the Company needs to follow the
procedure as prescribed under the Companies Act, 2013.

METHODS OF ALTERATION OF SHARE CAPITAL

As mentioned in Section 61 of the Companies Act, 2013 there are different methods of
alteration of Share Capital are as under:

1. Increase in Authorised OR issued Share Capital.

2. Consolidation all or any of the Share Capital into shares of larger amount than existing Share.
3. Sub-divide its shares or any of them, into the shares of smaller amount than existing shares.
4. Convert all or any of its fully paid-up shares into the stock and re-convert that stock into the
fully paid-up shares of any denomination;
5. Cancellation of shares which at the date of passing of the resolution in that behalf, have not
been taken or agreed to be taken by any person and diminish the amount of its share capital by
the number of shares so cancelled (No journal entry is needed in this method).

EXAMPLES
1. A company has following share capital;
(1) 10,000 equity shares of Rs. 10 each , Rs 5 paid up.
(2) 1000 preference shares of Rs 100 each, Rs. 50 paid –up.
The company decides that shares are to be consolidated or sub divided into Rs 50 each. Pass the
necessary journal entries.

Total Equity = 10,000*10 = Rs. 1,00,000 (Rs 10 each)

Now Rs. 1,00,000/ 50 = 2000 No. of shares need to be consolidated of Rs 50 each
Paid up capital = Face value Paid up value
10 : 5 = Rs . 25
50 : ?

Total Preference share = 1000*100 = Rs. 1,00,000 (Rs 100 each)

Now Rs. 1,00,000/ 50 = 2000 No. of shares need to be sub divided in to Rs 50 each
Paid up capital
Face value Paidup value
100 : 50 = Rs . 25
50 : ?

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Date Particulars Dr Cr
1. Equity share capital Account (Rs 10) (10,000 sh *5) 50,000
To Equity share capital Account ( Rs. 50) (2000 sh *25) 50,000
(Being 10,000 equity shares of Rs 10 each (Rs 5 paid up)
consolidated into 2000 shares Rs 50 each (Rs 25 paid up)

2 Preference share capital Account (Rs 100) (1000 sh *50) 50,000

To Preference share capital Account ( Rs. 50) (2000 sh *25) 50,000
(Being 1000 Preference shares of Rs 100 each (Rs 50 paid up)
sub divided into 2000 shares Rs 50 each (Rs 25 paid up)

2 A company has the following share capital :

10,000 Equity shares of Rs 10 each, Rs 5 paid up. The company make a final call of Rs 5 per
share and pass a resolution to convert the share capital into stock of an equivalent amount.
Later on company decides to reconvert the stock into fully paid equity shares of Rs 10 each. You
are required to pass journal entries in the books of the company.

Answer
Date Particulars Dr Cr
1 Equity share final call account Dr 50,000
To Equity capital account 50,000
(Being Rs 5 Called up on 10,000 Equity shares)

2 Bank Account Dr 50,000

To Equity share final call account 50,000
( Being call money on 10,000 shares of Rs 5 received)

3 Equity share capital account Dr 1,00,000

To Equity stock account 1,00,000
(Being conversion of fully paid up 10,000 shares of Rs 10 each
into stock of Rs 1,00,000)
1,00,000
4 Equity stock account Dr 1,00,000
To Equity share capital account
(Being reconversion of Rs 1,00,000 stock into 10,000 fully paid
up shares of Rs 10 each)

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 Unit-4 : Ratio Analysis & Analysis of Financial Statements

Accounting Ratios
o Profitability Ratios
o Liquidity Ratios
o Proprietary Ratios
o Solvency Ratios

Interpretation and Analysis of the above tools

(1) Gross Profit Ratio = Gross Profit * 100

Sales
(2) Net Profit Ratio = Net Profit * 100
Sales

(3) Operating Ratio = Cost of Sales + Operating Exp * 100

Sales
Where cost of sales = Op. Stock of Raw Material + Purchase – Cl. Stock of Raw Material

OR Cost of Sales = Sales + GP

(4) Expense Ratio = Expense * 100

Sales
In case of direct expense ratio numerator will be direct expense , same the case may be
with indirect expense ratio ,Adm Expense Ratio, Financial Expense Ratio & Selling &
Disribution Expense Ratio.

(5) Return on Share holders’fund = PAT * 100

Sahre holders’ Fund

Where, Share holders’ fund = Eq. share capital + Preference share capital + Reserve &
surplus.
PAT = PAT ( Profit after payment of interest and tax)

(6) Return on Equity Share holders’ Funds = PAT – Pref dividend *100
Eq. share capital + Reserves – Fictitious Assets

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 (7) Earning per share = Return available to Eq. Share holder (Pat- pr div) / No. of Eq. Share

(8) Return on Capital Employed = EBIT / Capital Employed * 100

Where CapitalEmployed = Share capital + Reserves + long term funds+ debentures +
long term loans .

(9) Current Ratio = Current Assets / Current liabilities

(10)Liquid Ratio = Liquid Assets / Liquid Liabilities

Where, Liquid Assets = current asset – stock
Liquid Liabilities = Current liabilities – BOD

(11)Acid Test or Quick Ratio = Quick Liquid Assets / Liquid Liabilities

Where Quick Liquid Assets are Liquid Assets - Debtors

(12) Dividend Per Share (DPS) = Dividend paid to equity share holder / No. of Equity Shares

(13) Dividend pay out Ratio (DPR) = DPS/EPS

EXAMPLE 1
Statement of Profit and loss account on 31/3/2017

Particulars Rs Rs
Sales 20,00,000
Cost of Goods Sold
Opening stock 2,50,000
+ Purchase (80% credit purchase) 9,00,000
-Closing Stock 3,00,000 8,50,000
Gross Profit 11,50,000
-Operating Expense:
2,40,000
(1) Administrative expense
2,60,000
(2) Selling & Distribution expense
20,000
(3) Financial Expense (Interest on bank loan)
30,000 5,50,000
(Interest on debentures)
6,00,000
=Net Profit before 50% taxation

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 Statement of Profit and loss account on 31/3/2017
Particulars Amount Amount
(1) Owners’ Fund :
Eq. Share Capital ( Each of Rs 100 ) 12,00,000
12% pr sh Capital (( Each of Rs 100 ) 4,00,000
Reserve fund 3,00,000
Workers’ Accident Compensation fund 1,00,000
20,00,000
(2) Loan Fund
10% Debentures 3,00,000
10% Bank loan 2,00,000 5,00,000
= Employed Capital 25,00,000
(3) Fixed Assets 20,00,000
(4) Current Assents
Stock 3,00,000
Debtors 4,00,000
Cash & Bank 1,00,000
Bills Receivable 50,000
Short term Investment 50,000
9,00,000
LESS:
(5) Currents Liabilities Provisions:
Workers’ Saving Account 60,000
Creditors 2,00,000
Provident Fund 1,00,000
Bank Overdraft 50,000
Bills Payable 40,000 (4,50,000)
(6) Misc Exps not written off ( Fictitious Assets)
Under writing Commission 30,000
Discount on Debentures 20,000 (50,000)
Total Invested Capital 25,00,000

Find out Ratios of Profitability ,Solvency & liquidity.

EXAMPLE 2 following is the trading and p & L a/c for the year ending on 31-03-2017 and
balance sheet on that date of Amita ltd.
Particulars Amount Particulars Amount
Opening Stock 90,000 Sales 4,50,000
Purchase 2,40,000 Closing Stock 60,000
Gross Profit 1,80,000

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 5,10,000 5,10,000
Administrative Expense 80,000 Gross Profit 1,80,000
Selling Distribution Expense 20,000
Other Expense 10,000
Interest on debentures 35,000
Tax Provision 35,000
1,80,000 1,80,000

Balance Sheet ( as on 31-03-2017)

Liabilities Amount Assets Amount
Ordinary share each of Rs 10 1,50,000 Building 1,80,000
8% Pref share Capital of Rs 100 50,000 Machines 1,00,000
Reserves and Surplus 60,000 Furniture 20,000
P & L A/C 40,000 Stock 60,000
10% Debentures 1,00,000 Debtors 80,000
Creditors 55,000 Bills Receivaable 20,000
Tax Provision 35,000 Cash & Bank 30,000
4,90,000 4,90,000

Find Out 1. Capital gearing Ratio 2. Debt – Equity Ratio 3. ROCE 4. Debtor Ratio 5. Stock
Turn Over 6. Return on Equity share holders’ fund 7.Current Ratio

EXAMPLE 3 Balance sheet as on 31-03-2017

Liabilities Amount Assets Amount

Capital Rohit 75,000 Building 1,00,000
+ Profit 22,500
97,500
Capital Rohit 75,000 Land 45,000
+ Profit 22,500 97,500
Reserve Fund 15,000 Investment 10,000
Insurance Fund 10,000 Stock 68,000
Bank Loan 25,000 Debtors 67,000
Creditors 56,000 Bank 22,500
Bank Over draft 11,500
3,12,500 3,12,500

Sales (all Credit) 3,60,000 Op Stock 50,000 Purchase on credit 2,88,000 cl. Stock 68,000
Administrative expense 20,000 selling exp 21,000 Interest on Bank loan 4,000

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Find the Ratio as given below and compare with ideal ratio as per Industry (given below):

1. Gross Profit ratio 22%

2. Net profit ratio 10%
3. Stock turn over 5
4. Liquid ratio 1.1 : 1
5. Rate on capital employed 20%
6. Debtor ratio (days of the year = 360) 45 days
7. Operating ratio 1.7 : 1
8. Current ratio 90%
9. Creditor ratio 50 days
10. Debt equity ratio 52%

Example 4 following is the data taken from the final accounts of JKL LTD as on 31-03-2013

Sales (40% credit) 15,00,000 Cost of sales 8,00,000

Other expense 3,00 000 Creditors 2,60,000
Stock 3,00,000 Debtor 1,50,000
(1-4-2012 Rs. 2,00,000) (1-4-2012 Rs 1,25,000)
Cash – Bank 1,00,000 Share capital 7,00,000

Find Out
1. Gross Profit ratio 2.Net profit ratio 3.current ratio 4.Debtor turnover 5. Stock turnover

EXAMPLE 5

A company supplies the following information :

Liabilities Amount Assets Amount
Share capital 2,00,000 Goodwill 1,20,000
Reserves & Surplus 58,000 Plant & Machinery 1,50,000
Debentures 1,00,000 Stock 80,000
Creditors 40,000 Debtors 45,000
Bills Payable 20,000 Cash 17,000
Other Current Liabilities 2,000 Misc current assets 8,000
4,20,000 4,20,000

Sales (credit) for the year = 4,00,000

Gross Profit = 1,60,000
Find out Current Ratio, Liquid ratio, Inventory turnover , Average collection period ,
Proprietors’ fund to liabilities

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Example 6
Following is the Balance Sheet of Friendss ltd. As pn March 31,2016.
Liabilities Amount Assets Amount
Equity shares of 10 each 3,00,000 Fixed Assets 6,80,000
15% Pr. Sh of 100 each 1,00,000 Stock 1,20,000
Reserves 3,00,000 Debtors 2,20,000
12% Debtors 2,00,000 Cash on hand 1,60,000
Creditors 2,40,000
Bank overdraft 40,000
11,80,000 11,80,000

Net profit after interest and taxes was rs 1,00,000

Find Out 1. Current Ratio 2.LiquidRatio 3.Return on shareholders’ fund 4.returnon equity
share capital 5.earnings per share.

Example 7
Particulars of Karan Ltd for 2015 & 2016 is as follows , You are required to find out 1.Current
ratio 2. Stock ratio 3.Gross profit ratio 4.Liquid Ratio 5.Debtors Ratio (Days for a year 300)
6. ROCE 7. Return on Equity capital 8.Proprietary Ratio

BALANCE SHEET
LIABILITIES AMOUNT ASSETS AMOUNT
Eq. share capital 1,25,000 Land building 75,000
General Reserve 15,000 Plant 55,000
Profit & Loss a/c 7,500 Stock 12,500
Creditors 6,250 Debtors 10,000
Bills payable 7,500 Cash/bank 7,500
Outstanding expense 3,750 Bill receivable 5,000
Bank overdraft 5,000 Primary Expense 5,000
1,70,000 1,70,000

Profit and loss a/c

Particulars Amount Particulars Amount
Op Stock 10,000 Sales 1,12,500
Purchase 47,500 Closing Stock 12,500
Admin. Exps 10,000
Selling Exps 12,500
Distribution Exps 10,000
Net Profit 35,000
1,25,000 1,25,000

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Example 8

Following information is acquired of Raj ltd. Calculate following ratios from the information
given
GP ratio, NP Ratio, Operating Expense Ratio, Rate of Return on share holders’ fund, Rate of
Return on Equity Share holders’ fund, ROCE , Current Ratio , Liquid Ratio , Acid test Ratio,
Debtors ratio , Creditors ratio.

Particulars Amount
Credit Sales (400% of cash sales) 10,24,000
Cost of sales ( in which credit purchase is 75%) 8,96,000
Net Profit (after 40% taxation) 76,800
Equity share capita 3,00,000
Reserve fund 2,00,000
10% debentures 1,16,000
Creditors 1,00,000
Bank overdraft 76,000
Fixed assets 4,24,000
Debtors 1,73,600
Stock 1,20,000
Cash bank 78,400
Preliminary expense 16,000
Bills payable 20,000

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