Reference no: EM13656438

Assignment A

This assignment consists of 5 analytical covering the syllabus till Analysis of Financial Statements.

Problem 1:

Journalize the following transactions in the books of Mr. Walter:

a) Paid rent of building $ 12,000 half of the building is used by the proprietor for residential use.

b) Paid fire insurance of the above building in advance $ 1,000.

c) Paid life insurance premium $ 2,000.

d) Paid income-tax $ 3,000.

e) Salary due to clerk $ 500.

f) Charge depreciation on furniture @ 10% p.a. for 1 month (furniture $ 12,000).

g) Provide interest on capital ($ 60,000) at 15% p.a. for 6 months.

h) Charge interest on drawing (10,000) at 18% p.a. for 6 months.

i) Provide interest on loan to Ram ($ 100,000) at 18% p.a. for 2 months.

j) Charge interest on loan to Shyam ($ 200,000) at 18% p.a. for 2 months.

k) Received commission $ 1,000 half of which is in advance.

l) Brokerage due to us $ 500.

Problem 2:

From following figures extracted from the books of Mr. XYZ, you are required to prepare a Trading & Profit & Loss Account for the year ended 31^st March, 2008 and a Balance Sheet as on that date after making the necessary adjustments.

	$		$
Mr. XYZ's Capital	228,800	Stock 1.4.2007	38,500
Mr. XYZ ' Drawings	13,200	Wages	35,200
Plant & Machinery	99,000	Sundry creditors	44,000
Freehold property	66,000	Postage & Telegrams	1,540
Purchases	110,000	Insurance	1,760
Rtuens outwards	1,100	Gas & fuel	2,970
Salaries	13,200	Bad debts	660
Office Expenses	2,750	Office rent	2,860
Discount A/c (Dr.)	5,500	Loose tools	2,900
Sundry Debtors	29,260	Factory lighting	1,100
Loan to Mr. Krish @10% p.a.	44,000	Provision for doubtful debts	880
Balance on 1.4.2007		Interest on loan to Mr. Krish	1,100
Cash at bank	29,260	Cash in hand	2,640
Bills payable	5,500	sales	231,440

Adjustments:

a) Stock on 31^st March, 2008 was valued at $ 72,600

b) A new machine was installed during the year costing $15,400 but it is not recorded in the books as on payment was made for it. Wages $ 1,100 paid for its erection has been debited to the wages account.

c) Depreciate :

a. Plant & machine by 33.33%

b. Furniture by 10%

c. Freehold property by 6%

d) Loose tools were valued at $ 1.760 as on 31.3.2008

e) Of the sundry debtors Rs.660 are bad and should be written off.

f) Maintain a provision of 5% on sundry debtors for doubtful debts.

g) The manager is entitled to a commission of 10% of the net profits after charging such commission.

Problem 3:

Following is the Trial Balance of M/s. Trinity Foods as on 30^th June 2007 (after closing Nominal Accounts). Prepare a Balance Sheet on the basis of this trial balance.

Particulars	Debit (Rs.)	Credit (in Rs.)
Cash	10,000
Capital		100,000
Bank	77,000
Furniture	25,000
Ram		15,000
Rahim	50,000
Trading & Profit & Loss		47,000
	162,000	162,000

Problem 4:

Given below are the financial statements of Safal Enterprises, using the tool of ratio analysis comment on the profitability and liquidity position of the firm for the year 2006-07. Total no. of shares outstanding for the firm is 2.69crores. In the view of growth opportunities in the near future the firm has been maintaining a policy of 45% payout.

Summarized P & L of Safal Enterprises

For the year ended 31 March

Particulars	2006	2007
	( Rs. In crores)
Sales	132.00	144.00
Other income	12.00	15.00
Cost of sales	102.96	110.02
Gross margin	29.04	33.98
Operating expenses
Administration	12.44	14.36
Selling & distribution	4.42	5.36
Profit before interest & tax (PBIT)	24.18	29.26
Interest	3.00	4.01
Profit before tax (PBT)	21.18	25.26
Provision for taxes	7.94	9.47
Profit after tax (PAT)	13.24	15.79

Balance Sheet of Safal Enterprises

Particulars	31/03/06	31/03/07
	(Rs in crores)
Assets
Fixed assets	31.25	37.50
Current assets
Inventory	14.56	16.64
Accounts receivable	13.20	15.43
Cash	1.50	1.75
Less: Current liabilities	8.55	11.25
Net current assets	20.71	22.57
Total Assets	51.96	60.07
Liabilities &owners equity
Share capital	27.00	27.00
Reserves & Surplus	4.96	6.36
Debt(long term)	20.00	26.71
Total	51.96	60.07

Problem 5:

Given below are the balance sheets of the two firms- Gloria Ltd and Victoria Ltd as on 31^st March 2007.

	Gloria Ltd.	Victoria Ltd.
Assets
Cash and Bank balance	12.70	38.60
Marketable securities	10.00	21.00
Sundry debtors	22.00	23.70
Prepaid expenses	93.50	162.45
Current Assets	1.12	2.14
Fixed Assets (Net)	139.32	247.90
Total Assets	589.00	642.00
	728.323	889.895
Liabilities and Owners Equity
Sundry creditors	6.75	26.45
Notes payable	6.56	6.45
Long term debt	130.01	345.00
Equity	585.00	512.00
Total	728.323	889.895

1. Can the financial positions of the two firms be compared assuming that the two firms fall in the same industry?

Assignment B

This assignment is covering the remaining syllabus and a case study.

Problem 1:

 Find out the cost of raw material purchased from the data given below:

Particulars	Rs.
Prime cost	200,000
Closing stock of raw material	20,000
Direct labour cost	100,000
Expenses on purchases'	10,000

Problem 2:

The product of a manufacturing concern passes through two processes A and B and then to finished stock. It is ascertained that in process A normally 5% of the total input is scrap which realizes Rs. 80 per tonne.

From the following information relating to process A for the month of August 2007, prepare process A account

Materials	500 tonnes
Cost of materials	Rs. 125 per tonne
Wages	Rs. 14,000
Manufacturing overheads	Rs. 4,000
Output	415 tonnes

Problem 3:

Ahmedabad Company Ltd. manufactures and sells four types of products under the brand name Ambience, Luxury, Comfort and Lavish. The sales mix in value comprises the following:

Brand name          Percentage

Ambience          33 1/3

Luxury             41 2/3

Comfort             16 2/3

Lavish           8 1/3

   ------

   100

The total budgeted sales (100%) are $ 600,000 per month.

The operating costs are:

Ambience 60% of selling price Luxury

Luxury    68% of selling price Comfort

Comfort   80% of selling price Lavish

Lavish    40% of selling price

The fixed costs are $. 159,000 per month.

a) Calculate the breakeven point for the products on an overall basis.

b) It has been proposed to change the sales mix as follows, with the sales per month remaining at $. 6,00,000:

Brand Name      Percentage

Ambience      25

Luxury        40

Comfort         30

Lavish        05

---

  100

Assuming that this proposal is implemented, calculate the new breakeven point.

Case study:

Bajaj Auto Limited: The Unprecedented Growth Story

Bajaj Auto Limited is the flagship company of the Bajaj Group. The company manufactures two & three wheelers. Mr. Rahul Bajaj is the present Chairman of the company. The company was incorporated in the year 1945 as M/s Bachraj Trading Corporation Private Ltd. The promoters hold about 30% equity, whereas Indian public holds about 26% and institutional investors have more than 27% stake in the company.

The products manufactured by Bajaj Auto are scooters, motor cycles, auto spares parts, machine tools, steel and engineering products. The company also produces three- wheelers as goods carriers such as pick-up or delivery vans and passenger carriers such as auto-rickshaws. Bajaj Auto has a network of 498 dealers, 1,500 authorized service centres and 162 exclusive three-wheeler dealers spread across the country.

Bajaj Auto has also diversified into the general as well as life insurance business through its subsidiaries Bajaj Allianz General Insurance Company Ltd, respectively. The Bajaj brand has presence in many countries such as Sri Lanka, Mexico, Bangladesh, Columbia, Peru, Egypt, etc. The main competitors of the company in the two-wheelers and three-wheelers segment are- Hero Honda Motors Ltd, Kinetic Motor Co Ltd, LML ltd, Maharashtra Scooters Ltd, and TVS Motor Co. Ltd.

The company sold close to 23 lakh vehicles in 2005-06, which is a record performance in its history. The sales of motorcycles manufactured grew by 32% in 2005-06 compared to a market growth of below 19%. For the fifth successive year, the company raised its market share in the motorcycle segment. Today it stands at almost 31%. Sales increased by almost 31% to an all-time high of Rs 9,285 crore in 2005-06. the export of the company in all its product categories has also been unprecedented during the FY 2005-06 as is reflected in the figures given below:

Table A Product-wise exports of Bajaj Auto Ltd

Product	2005-06	2004-05	Growth
	( in numbers )		(in percentage)
Motorcycles	165,288	123,946	33
Total two-wheelers	174,907	130,945	34
Three-wheelers	75,297	65,765	14
Total vehicles	250,204	196,710	27

Even more impressive has been the growth in company's operating EBITDA, which increased by 47% to touch Rs 1805 crore during 2005-06. Consequently the operating EBITDA margin grew by 220 basis points to 17.9% of the sales and operating income. Earnings per share have been risen from Rs 75.60 to Rs 111.00 in the current year. Dividend too has grown to Rs 40 per share (400%) for the year ended 31^st March 2006 as against Rs 25 per share in 2005.

Over the past few years, Bajaj Auto has focused on his technology development, and product development in anticipation of market needs, scaling up its manufacturing facilities, implementing best-in-class production systems, rationalizing vendors, slashing costs while upgrading quality, restructuring dealerships, and distribution channels. These capabilities enabled the company to create exciting new products, which have set benchmarks in styling, design, and technology. The company's products are creating a customer pull at all price points and the company has now transformed from being a price warrior to a price leader. The results of these strategies are reflected in its financial statements as follows (refer Table B and C):

Table B Profit and Loss Account for Bajaj Auto Ltd for the year ended

	March 2003	March 2004	March 2005	March 2006
	(Rs in crore)
Sales	4987.05	5721.44	7078.06	9284.84
Other income	297.10	507.04	516.41	602.52
Change in stocks	32.92	10.87	-11.57	50.10
	5317.07	6239.35	7582.90	9937.46
Expenditure	4335.16	5017.92	6286.91	8131.87
Profit & Loss
PBDIT	981.91	1221.43	1295.99	1805.59
Interest	1.12	0.94	0.67	0.34
Depreciation	171.42	184.32	185.66	191.28
PBT	809.37	1036.17	1109.66	1613.97
Tax provision	274.44	285.41	349.32	509.37
PAT	534.93	750.76	760.34	1104.60
Dividends	159.81	285.37	288.64	461.50

Table C Assets and Liabilities of Bajaj Auto Ltd as on 31 March 2006

Liabilities	Mar 05	Mar 06	Assets	Mar 05	Mar 06
	Rs in crore			Rs in crore
Net Worth	4447.16	5349.79	Gross fixed assets	2870.02	3092.28
Paid up Equity capital	101.18	101.18	Capital WIP	9.14	25.26
Bonus Equity capital	114.17	114.17	Less: cumulative depreciation	1660.32	1834.19
Minority interest	89.46	148.79	Net fixed Assets	1205.64	1230.77
Reserves & Surplus	4256.52	5099.82	Investments	5273.83	6865.43
Free reserves	4233.28	5076.58	Deferred tax assets	9.20	6.43
Share premium reserves	87.07	285.78	Inventories	224.70	274.47
Other free reserves	4146.21	4790.80	Receivables	3116.05	5799.11
Specific reserves	23.24	23.24	Sundry debtors	176.97	302.54
Borrowings	1229.17	1469.44	Debtors exceeding 6 months	0.20	1.13
Deferred tax liabilities	139.90	87.58	Advances/loans to corporate bodies	62.29	33.66
Current liabilities & provisions	4284.64	7773.20	Group/associate companies	34.44	19.41
Sundry Creditors	833.86	1404.40	Other companies	27.85	14.25
Other current liabilities	1169.04	3674.37	Advance payment of tax	1823.60	1869.40
Provisions	2281.74	2694.43	Other receivables	1053.19	3593.51
			Cash & Bank balance	266.88	476.48
			Intangible/DRE not written off	4.57	27.32
Total Liabilities	10100.87	14680.01	Total Assets	10100.87	14680.01

Notwithstanding its excellent financial performance in the years following its major strategic shift, the management of the firm believes in the philosophy that the quest for perfection is eternal.

To preclude the complacency from setting in, the management not only sets higher standards it also continuously monitors its performance and benchmarks with the industry performance in general and their closest competitors' results in particular.

Discuss

1. Is the profitability performance of the firm satisfactory? If not, how can it be improved?
2. How attractive is the firm from the short-term and long-term lenders, perspective? Does the firm appear to be the favorite destination in the automobile sector (two-wheelers and three-wheelers segment) for the lenders?
3. How efficient is the firm been in utilizing the resources at its disposal? How do you think the company can improve upon its efficiency?

Assignment 'C'

State whether the following are 'True' or 'False':

1. Accounting is a language of business. 
2. Accounting is a service function. 
3. Accounting records only those transactions and events which are financial character. 
4. Drawings reduce capital. 
5. Capital is increased by profit and decreased by losses. 
6. The system of recording transaction on the basis of their two old aspects is called double entry system.
7. Purchases made from B for cash should be debited to B. 
8. Earnings of revenue means increase in Cash/Bank balance 
9. The balance of an account is always known by the side which is shorter. 
10. The return of goods by a customer should be debited to Returns Inwards Account. 
11. Goods bought for resale are referred to as Stocks 
12. If the business has any liability, the proprietor's capital must be more than the total assets.
13. Withdrawal of money by the owner is an expense for the business. 
14. Ledger is called the book of final entry. 
15. Cash book is used to record all receipts and payments of cash. 
16. Sales book is used to record all credit sales. 
17. The journal is not a book of original entry. 
18. Goodwill is an intangible asset. 
19. Salaries & Wages appearing in the trial balance are shown on the liabilities side of the balance sheet. 
20. The profit & loss account is one of the financial statements. 
21. Share having preferential right as to dividend and repayment of capital are termed as equity share capital. 
22. Shares which are not preference shares are called equity shares. 
23. The amount of share premium received by the company is shown under the heading reserves & surplus in the company's balance sheet.
24. Debenture holders are not the member of the company. 
25. There are no legal restrictions, similar to shares, for issue of debentures at discount.
26. Fixed cost per unit remains constant. 
27. Direct cost is that cost which can not be easily allocated to cost units.
28. Selling overheads form a part of cost of production.
29. Manufacturing and administrative overheads are different.
30. Total fixed cost remains unaffected by the change in volume of output.
31. Variable cost per unit remains fixed.
32. In chemical industries unit costing is used.
33. The output of a process is transferred to next process.
34. Good units bear the abnormal loss arising in the process costing.
35. Excess of pre-estimated loss over actual loss is known as abnormal loss.
36. Marginal costing is a method of ascertaining cost.
37. A firm earns no profit or incurs no loss at BEP.
38. Margin of Safety implies 'Break Even Point'.
39. In marginal costing, stock is valued at fixed costs.
40. Sales below BEP mean profit.