Financial Accounting and Analysis (KMBN 103)

Question Bank
Theoretical Questions
Q1. “Accounting concepts acts as guidelines to accountant in preparing the accounts.” Explain the statement in
the light of various accounting concepts.

Q2. “Depreciation is the permanent decrease in the value of asset through wear and tear in the use or the
passage of time”. Critically evaluate depreciation accounting concept.
Q3. “Trial Balance is a conclusive proof of accuracy of books of accounts.” Do you agree with this statement.
Q4. As an accountant how will you calculate the factory manager commission if the commission to manager is
provided at a percentage of net profit which is found out before charging such commission and after charging
such commission.
Q5. Describe the procedure in your own words from journal to final accounts under double entry system.
Q6. “It has been said that accounting conforms itself to the needs of business, not business to the needs of
accounting.” Explain this statement.
Q7. What is accounting. Outline the needs for accounting and briefly describe the objectives of accounting.
Q8. Write short note on:
a) Forensic Accounting
b) Human Resource Accounting
c) Accounting for corporate social responsibility
d) Common size statements.
Q9. “Accounting Standards ensure the consistency and comparability of Financial Statements”. In light of this
statement explain the procedure for issuing Accounting Standards in India.
Q10. Ratio Analysis is considered as one of the most important tools for analyzing financial statements. State
the significance of Ratio Analysis and the limitations of Accounting Ratios.
Or Describe the various ratio that are likely to help the management of manufacturing unit in forming an option
on the solvency and financial position of the business.
Q11. Summarized the vertical analysis and trend analysis of financial statements with imaginary figure.
Q12. What is Cash Flow Statement? What are the objectives behind making a Cash Flow Statement?
Distinguish between Cash Flow and Funds Flow Statement.

Numerical Questions
Q1. From the following balances prepare Trading and Profit & Loss Account only for the year ended 31st
March 2019 in the books of Sohan:
Particulars Rs.
Opening Stock 32000
Purchases 171000
Return Outward 4000
Sales 289600
Wages 23000
Carriage Inward 1500
Power 8000
Returns Inward 600
Rent Received 600
Bad Debts Reserve 600
Advertisement and Development 8000
Rent and Insurance 19900
Depreciation on Machinery 1000
Salaries 34400
Dividend Received 1800
General Charges 8200
Travelers Commission 2890
Travelers Salaries 9100
Discount Allowed 5000
Capital A/C 41000
Creditors: Trade 30000
Expenses 6800
Plant and Machinery 20000
Goodwill 5000
Travelers Sample 2700
Debtors 14600
Drawings 5000
Cash at Bank 2000
Cash in Hand 110
Prepaid Expenses 400
Adjustments:
i. Closing Stock is valued at Rs. 31400. There was a loss by fire to the extent of Rs. 2000 after valuation
of stock not covered by insurance.
 ii. Bad Debts incurred Rs. 1000 and provide 5% on Debtors.
iii. Written off Advertisement and Development Expenses by Rs. 2900
iv. 5 % of the net profit as commission after charging such commission to be allowed to manager.
v. Expenses of Rs. 200 paid for proprietor charged to General Charges Account.

Q2. From the following information compute:

a) Debt to Equity Ratio
b) Total Asset to Debt Ratio
c) Propriety Ratio

Items Rs.
Long term Borrowings 100000
Long Term Provisions 50000
Current Liabilities 25000
Non-Current Assets 180000
Current Assets 45000
Q3. You are required Prepare the Cash Flow Statement from the given information.

2021 2022
I Equity and Liabilities
Equity Capital 500000 540000
Preference share capital 100000 80000
General Reserve 600000 580000
Statement of P&L 576000 588000
Non-Current Liabilities
Loan from Associate Company 240000
Loan from Bank 372000 300000
Current Liabilities
Trade Payable 432000 492000
II Assets
Land 240000 360000
Buildings 600000 660000
Machinery 960000 1032000
Goodwill 2500 1500
Current Assets
Cash 60000 43200
Debtors 420000 460800
Stock 300000 264000
Discount on issue share 20000 18500
1. During the year Rs. 312000 was paid as Dividend.
2. The provision for Depreciation against Machinery in 2021 was Rs. 324000 and 2022 was Rs. 432000.
3. 10% Preference share redeemed at 5% premium.
Q4. Below is given the Trial Balance of Mr.ABC in respect of the year ending 31st March 2020.Prepare his
Trading and Profit & Loss Account for the year 2020 and his balance sheet as at that date:
Particulars Rs. Particulars Rs.
Stock (1st April 2019) 16000 Sales 130000
Purchases 90000 Purchases Returns 800
Carriage Inward 1250 Discount 400
Sales Returns 600 Commission 750
Insurance 1500 Provision for Bad 400
Debts
Trade Expenses 3600 Capital 32000
Salaries 8200 Bank Loan 4400
Bad Debts 300 Creditors 11600
Debtors 17000 Bills Payable 2000
Building 24000 Output SGST 800
Machinery 10000 Output CGST 800
Drawings 4000 Output IGST 600
Bills Receivable 4500
Cash 1600
Input SGST 1000
Input CGST 1000

TOTAL 184550 TOTAL 184550

Following adjustments are necessary:
a. Closing Stock on 31st March 2020 was Rs. 12000.
b. Interest at the rate of 5% p.a. was to be allowed on capital.
c. Rs. 800 are outstanding for salaries
d. Insurance prepaid Rs. 150
e. Depreciation is to be written off on buildings at 2% and on machinery at 10%.
f. Provision of 5% bad and doubtful debts.
g. Commission earned but not received Rs. 200.
h. A fire occurred 1 April 2020 destroying goods costing 1000. These goods are purchased paying SGST
and CGST @6%
Q5. The Balance Sheet of Punjab Auto Limited as on 31‐12‐2002 was as follows:
Particular R Particul Rs
s. ar .
Equity Share Capital 40,000 Plant & Machinery 24,000
Capital Reserve 8,000 Land & Buildings 40,000
8% Loan on Mortgage 32,000 Furniture &Fix 16,000
Creditors 16,000 Stock 12,000
Bank overdraft 4,000 Debtors 12,000
Taxation: Current 4,000 Investments (Short‐ 4,000
Future 4,000 term)
Profit and Loss A/c 12,000 Cash in hand 12,000
1,20,000

1,20,000
From the above, compute (a) the Current Ratio, (b) Quick Ratio, (c) Debt‐Equity
Ratio, and (d) Proprietary Ratio.
 Q6. The details of Shreenath Company are as under:
Sales (40% cash sales) 15,00,000
Less: Cost of sales 7,50,000
Gross Profit: 7,50,000
Less: Office Exp. (including int. on debentures) 1,25,000
Selling Exp. 1,25,000 2,50,000
Profit before Taxes: 5,00,000
Less: Taxes 2,50,000
Net Profit: 2,50,000

Particula Rs Particul Rs
r . ar .
Equity share capital 20,00,000 Fixed 55,00,000
10% Preference share 20,00,000 Assets 1,75,000
capital Reserves 11,00,000 Stock 3,50,000
10% 10,00,000 Debtors 50,000
Debentures 1,00,000 Bills 2,25,000
Creditors 1,50,000 receivable 1,00,000
Bank‐overdraft 45,000 Cash
Bills payable 5,000 Fictitious Assets
Outstanding expenses 64,00,000 64,00,000

Balance Sheet
Beside the details mentioned above, the opening stock was of Rs. 3,25,000. Taking 360 days of the year,
calculate the following ratios; also discuss the position of the company:
(1) Gross profit ratio. (2) Stock turnover ratio. (3) Operating ratio. (4) Current ratio. (5) Liquid
ratio. (6) Debtor turnover Ratio. (7) Creditors turnover Ratio. (8) Proprietary ratio. (9) Rate of return on net
capital employed. (10) Rate of return on equity shares.

Q7. From the following particulars extracted from the books of Ashok & Co. Ltd., compute the following ratios
and comment:
(a) Current ratio, (b) Acid Test Ratio, (c) Stock‐Turnover Ratio, (d) Debtors Turnover Ratio, (e)
Creditors' Turnover Ratio, and Average Debt Collection period.
1‐1‐2002 31‐12‐2002
Rs. Rs.
Bills Receivable 30,000 60,000
Bills Payable 60,000 30,000
Sundry Debtors 1,20,000 1,50,000
Sundry Creditors 75,000 1,05,000
Stock‐in‐trade 96,000 1,44,000
Additional information:
(a) On 31‐12‐2002, there were assets: Building Rs. 2,00,000, Cash Rs. 1,20,000 and Cash at Bank Rs. 96,000.
(b) Cash purchases Rs. 1,38,000 and Purchases Returns were Rs. 18,000.
(c) Cash sales Rs. 1,50,000 and Sales returns were Rs. 6,000.
Rate of gross profit 25% on sales and actual gross profit was Rs. 1,50,000.

Q8. Enter the following transactions in the Journal of X :

 Rs.
2020
April 1 Started business with a capital of 75000
April 2 Purchased goods from Kumar Steels for cash 30000
April 5 Purchased goods from Prasad Steels on credit 40000
April 8 Sold goods to Mahendra Lal for cash 60000
April 11 Paid Carriage 5000
April 15 Cash deposited into Bank 1000
April 20 Received claim for Rs. 2500 from a customer for the late supply of goods, claim admitted for Rs.
1000.
April 25 Mahendra Lal returned goods 40000.
Q9. A company purchased a machine for Rs. 20000 on 1 st October 2010 and on 1st April 2011 another machine
was purchased for Rs. 12000. On 1st July 2012 the machine purchased on 1st October 2010 for Rs. 20000 was
sold for Rs. 16500 and a new machine was purchased on the same day for Rs. 10000.Preapre Machinery
account for 3 years providing depreciation by Diminishing Balance Method at 10% p.a. The accounting year of
the company ends on Financial Year.
Q10. Pass journal entries in the books of XYZ from the following:
2021
March 5 Goods Purchased: for Cash Rs. 10000, on Credit from Nutan Press Rs. 22500.
March 6 Goods Sold: for Cash Rs. 40000, on Credit to Bharti Bhawan Rs. 17820.
March 8 Payment made by cheque to Nutan Press Rs. 22000 and balance received as discount.
March 10 Payment made by Bharti Bhawan Rs. 17500 in cash and balance allowed as discount.
March 18 Goods returned by Sonar Kutir Rs. 7000.
Q11.Using the information given below, prepare the balance sheet of a firm having a sale of 18 lakhs.
Current Ratio 1.75
Liquid Ratio 1.25
Stock turover Ratio 9
Gross Profit Ratio .25
Debt collection Period 1.5 month
Reserve & Surplus to capital .2
Turnover to Fixed assets 1.2
Capital Gearing Ratio .5
Fixed Assets to Net Worth 1.25
Q12. From the following details relating to the accounts of Grow more ltd, prepare a cash flow statement.

Particulars 31/03/21 31/03/22

Equity Share capital 10,00,000 8,00,000
Reserve 2,00,000 1,50,000
Profit & Loss a/c 1,00,000 60,000
Debentures 2,00,000 -
Provision for Taxation 1,00,000 70,000
Proposed Dividend 2,00,000 1,00,000
Sundry Creditors 7,00,000 8,20,000

Plant & Machinery 7,00,000 5,00,000

Land & Building 6,00,000 4,00,000
Investments 1,00,000 -
Debtors 5,00,000 7,00,000
Stock 4,00,000 2,00,000
cash 2,00,000 2,00,000

1. Depreciation @25% p.a. was charged on the opening value of plant and machinery.
2. During the year, one old machine costing 50,000(WDV 20,000) was sold for 35,000.
3. 50,000 were paid towards income tax during the year.
4. Building under construction was not subject to any depreciation.
5. Dividend declared during the 20000.