Assignment Set – 1

Q1. A. Discuss the significance of financial statement analysis. Mention types of financial statements Analysis are there?

1. Prepare Income Statement for the year ended 31st Dec 2024 from the following as per schedule III of companies Act 2013:

Gross Revenue (Sales) ……………………………….. ₹ 1,200,000

Purchase of Raw Material …………………………… ₹ 640,000

Opening Raw Material ………………………………. ₹ 180,000

Closing Raw Material ………………………………. ₹ 80,000

Depreciation ………………………………………… ₹ 30,000

Selling Expenses …………………………………… ₹ 12,000

Retirement Benefit Expense ……………………….. ₹ 55,000

Salary Expense …………………………………….. ₹ 90,000

Office equipment (life less than 1 year) …………. ₹ 60,000

Interest Expense ……………………………………. ₹ 10,000

Tax Expense ……………………………………….. ₹ 50,000

Extraordinary Expenses ………………………….. ₹ 40,000

Note: Office equipment with less than 1 year life is treated as revenue expenditure.

Ans 1.

(A). Significance and Types of Financial Statement Analysis

Financial Statement Analysis is the process of examining a company’s financial statements to evaluate its performance, profitability, and financial health. It helps in understanding how efficiently a business operates by analyzing key components such as the Balance Sheet, Income Statement, and Cash Flow Statement.

The analysis is crucial for decision-making — investors assess returns, creditors judge creditworthiness, and management plans for growth and control. It also reveals trends, strengths, weaknesses, and helps forecast future performance. Profitability ratios show earning

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Q2. From Income Statement for the Year Ended December 31,2024 (in Rs.). Determine Cash from operating activity.

Revenues

• Sales …………………………………. ₹ 6,00,000
• Other revenues ………………………… ₹ 60,000

Expenses

• Cost of goods sold …………………… ₹ 2,50,000
• Operating expenses ………………….. ₹ 1,20,000
• Interest expense …………………….. ₹ 12,000
• Tax expense ………………………….. ₹ 25,000

Net income (as per statement) ………. ₹ 2,53,000

Additional information

• Depreciation expense …………………….. ₹ 35,000
• Increase in Accounts Receivable …………. ₹ 12,000
• Decrease in Inventory …………………… ₹ 7,000
• Increase in Accounts Payable ……………. ₹ 10,000
• Increase in Accrued Expenses ……………. ₹ 4,000

(Assumption: interest and tax paid during the year equal interest expense and tax expense shown — no separate timing differences provided.)

Ans 2.

Calculation of Cash from Operating Activities

(For the year ended December 31, 2024)

Given

Q3. A. Prepare a schedule for changes in the working capital from the Balance sheet data given below:

Current ratio = 3:1

Acid-Test ratio = 1.5 :1

Working capital = Rs.180000

Find out:

1. Current assets
2. Current Liabilities
3. Liquid assets

7+3 marks

Ans 3.

1. Schedule of Changes in Working Capital

(All figures in ₹)

Identify Current Items

• Current Assets (CA): Stock-in-trade, Debtors, Cash
• Current Liabilities (CL): Trade Creditors
• (Machinery is a fixed asset; Share Capital and P&L A/c are not current)

Working Capital at Each Date

Assignment Set – 2

Q4. A. Perform a trend analysis for ABC co. over a five-year period (2018-2022) for sales, expenses, and net income to understand the relationships between these components.

(B). ₹ 2,00,000 is the cost of revenue from operations, inventory turnover is 8 times, stock at the beginning is 1.5 times the stock at the end. Calculate the value of opening and closing stock.

Ans 4.

1. Trend Analysis of ABC Co. (2019–2023)

Trend Analysis

Trend analysis helps study changes in key financial components—sales, expenses, and net income—over multiple years. It shows whether the company’s performance is improving or declining. The base year is taken as 2019 (index = 100), and subsequent years are expressed as percentages of the base year.

Sales and Expenses Trend

Q5. (A). State different techniques of Earnings Management.

(B). Explain different methods used for Financial Forecasting.

Ans 5.

1. Techniques of Earnings Management

Earnings management refers to the intentional manipulation of accounting practices to present a company’s financial performance in a desired manner. While often done within the framework of accounting rules, it can mislead stakeholders about the company’s true financial health.

Major Techniques

• Income Smoothing: Companies adjust the timing of revenue and expenses to reduce fluctuations in reported profits and show stable performance.
• Cookie Jar Reserves: Firms overstate expenses or create excessive provisions in good

Q6. From the following Balance sheet of a SGRCS ltd  for the year 2023 and 2024. Prepare a comparative Balance sheet and comment on the financial position of the concern:

Ans 6.

Comparative Balance Sheet of SGRCS Ltd.

(₹)

Formulas used

• Absolute Change = 2024 − 2023
• % Change = (Absolute Change ÷ 2023) × 100
• Current Assets (CA) = Stock + Debtors + Bills Receivable + Cash/Bank + Prepaid (and any other current asset)
• Current Liabilities (CL) = Bills Payable + Sundry Creditors + Other Current Liabilities
• Working Capital (WC) = CA − CL

1. A) Comparative Statement — Liabilities & Equity