DCM2105 FINANCIAL STATEMENT INTERPRETATION MARCH 2025

Description

SESSION	march  2025
PROGRAM	BACHELOR OF Commerce (B.Com)
SEMESTER	III
course CODE & NAME	DCM2105 Financial statement interpretation

 

 

 

Assignment Set – 1

 

 

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

2013. Prepare Income Statement for Year ended 31st Dec 2023 from the below information as per schedule III of companies Act 2013.

Gross Revenue                                              Rs 1,000,000

Purchase of Raw material                            Rs 5,60,000

Opening Raw material                                 Rs 2,00,000

Closing of raw material                                Rs 60,000

Depreciation                                                  Rs 25,000                   

Selling expenses                                             Rs 5,000         

Retirement benefit expense                          Rs 50,000       

Salary expense                                               Rs  70,000      

Office equipment (life less than 1 year)      Rs 50,000       

Interest expense                                             Rs 7,000

Tax Expenses                                                             Rs 45000

Extra ordinary Expenses                             Rs 60,000

 

Ans 1.

Significance of Financial Statement Analysis

Financial statement analysis is a systematic process of examining a company’s financial data to evaluate its performance, profitability, and financial health. The analysis helps various stakeholders such as investors, creditors, management, and regulators make informed decisions.

Importance:

1. Assesses Profitability – Understands how efficiently a company generates profits.
2. Measures Financial Stability – Evaluates solvency and liquidity positions.
3. Supports Decision-Making – Assists management in planning and budgeting.
4. Investment Evaluation – Helps investors in analyzing returns and risk.
5. Creditworthiness Assessment – Enables lenders to judge repayment ability.

Types of Financial Statement Analysis

1. Horizontal Analysis – Compares financial data over multiple periods to observe trends.

 

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Q2. From Income Statement for the Year Ended December 31,2023 (in Rs.). Determine Cash from operating activity.

Revenue                                                Expenses    

Sales                Rs. 5,00,000    Cost of Goods Sold                Rs. 2,00,000

Other Revenues         Rs. 50,000       Operating Expenses      Rs. 1,00,000

Interest Expense        Rs. 10,000

Tax Expense  Rs. 20,000

Net Income     Rs. 2,20,000

Additional Information:

Depreciation Expense: Rs. 30,000

Changes in Working Capital:

Increase in Accounts Receivable: Rs. 10,000

Decrease in Inventory: (Rs. 5,000)

Increase in Accounts Payable: Rs. 8,000

Increase in Accrued Expenses: Rs. 3,000

 

Ans 2.

Determine Cash from Operating Activities (Indirect Method)

Step 1: Start with Net Income

Step 2: Add Non-Cash Expenses

• Depreciation Expense = ₹30,000

 

 

 

Q3a. Prepare a schedule for changes in the working capital from the Balance sheet data given below:

	Dec 2023 (Rs.)	Dec 2024 (Rs.)
Capital & Liabilities:
Share Capital	6,00,000	7,50,000
Trade creditors	2,12,000	1,40,000
Profit & Loss A/c	28,000	62,000
	8,40,000	9,52,000
Assets:
Machinery	140,000	2,00,000
Stock-in-trade	2,42,000	2,72,000
Debtors	3,62,000	3,40,000
Cash	96,000	1,40,000
Total	8,40,000	9,52,000

 

3. (B)

Current ratio = 2.8:1

Acid-Test ratio = 1.5 :1

Working capital = Rs.162000

Find out:

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

 

Ans 3.

 (a) – Schedule of Changes in Working Capital

Working Capital = Current Assets – Current Liabilities We consider only current assets and current liabilities for this schedule.

Step 1: Identify Current Assets & Current Liabilities

Current Assets:

• Stock-in-trade
• Debtors
• Cash

Current Liabilities:

• Trade Creditors

 

 

 

 

 

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.

Year    Sales                Expenses        Net Income

2018    Rs. 800,000     Rs. 600,000     Rs. 200,000

2019    Rs. 850,000     Rs. 620,000     Rs. 230,000

2020    Rs. 780,000     Rs. 640,000     Rs. 140,000

2021    Rs. 920,000     Rs. 700,000     Rs. 220,000

2022    Rs. 950,000     Rs. 720,000     Rs. 230,000

 

From the following particulars, you are required to calculate.

Earnings per share

Price – Earnings Ratio.

Return on capital employed.

 

Particulars                            Amount                              Particulars                Amount

Equity shares capital (Rs 10)           ₹ 2,00,000                                  Reserve & surplus            ₹ 50,000              

Building                                            ₹ 2,50,000                                  Plant and Machinery         ₹ 1,50,000

10% Debenture                               ₹ 1,50,000                                  12% loan                          ₹ 50,000

Inventory                              ₹ 50,000                          Cash in hand                     ₹ 30,000  

Debtors                                             ₹ 40,000                           Creditors         ₹ 60,000   

B/R                                        ₹ 10,000                           B/P                              ₹ 40,000

Advance Tax                             ₹ 4,000                          Bank Overdraft                  ₹ 4,000

Other Information:

Net profit before Interest and Tax: Rs 2,50,000

Tax Rate = 40%

The current market price of Share is Rs 50

Ans 4.

1. Trend Analysis (2018–2022)

In trend analysis, we express each year’s figure as a percentage of the base year (2018 = 100%).

Year	Sales (₹)	Sales Index	Expenses (₹)	Expenses Index	Net Income (₹)	Net Income Index
2018	800,000	100.0	600,000	100.0	200,000	100.0
2019	850,000	106.25	620,000	103.33	230,000	115.0
2020	780,000	97.50	640,000	106.67	140,000	70.0
2021	920,000	115.0	700,000	116.67	220,000	110.0
2022	950,000	118.75	720,000	120.0	230,000	115.0

 

Interpretation:

 

 

Q5. a. Propose a framework to detect and minimize Earnings Management in organizations.

1. Compare and contrast qualitative and quantitative methods of Financial Forecasting.

Ans 5.

1. Framework to Detect and Minimize Earnings Management in Organizations

Understanding Earnings Management

Earnings management refers to the deliberate manipulation of financial statements by management to achieve desired financial results, often to meet targets or influence stock prices. While it may not always involve outright fraud, it distorts the true financial health of an organization and undermines investor trust and financial transparency.

Detecting Earnings Management

To detect earnings management, a structured framework must be established that combines

 

 

Q6. From the following Balance sheet of a SGRCS ltd  for the year 2024 and 2025. Prepare a comparative Balance sheet and comment on the financial position of the concern:

Liabilities	2024	2025	Assets	2024	2025
Equity Share capital	6,00,000	8,00,000	Land & Buildings	3,70,000	2,70,000
Reserves & Surplus	3,30,000	2,22,000	Plant & machinery	4,00,000	6,00,000
Debentures	2,00,000	3,00,000	Furniture & Fixtures	20,000	25,000
Long-term loans on mortgage	1,50,000	2,00,000	Other fixed assets	25,000	30,000
Bills payable	50,000	45,000	Cash in hand and bank	20,000	80,000
Sundry creditors	1,00,000	1,20,000	Bills receivable	1,50,000	90,000
Other current Liabilities	5,000	10,000	Sundry Debtors	2,00,000	2,50,000
			Stock	2,50,000	3,50,000
			Prepaid Expenses		2,000
Total	14,35,000	16,97,000	Total	14,35,000	16,97,000

 

Ans 6.

Comparative Balance Sheet of SGRCS Ltd. for 2024 and 2025 (All amounts in ₹)

Liabilities Side

Particulars	2024	2025	Increase / (Decrease)	% Change
Equity Share Capital	6,00,000	8,00,000	2,00,000	33.33%
Reserves & Surplus	3,30,000	2,22,000	(1,08,000)	(32.73%)
Debentures	2,00,000	3,00,000	1,00,000	50.00%
Long-term Loans	1,50,000	2,00,000	50,000	33.33%
Bills Payable	50,000	45,000	(5,000)	(10.00%)
Sundry Creditors	1,00,000	1,20,000	20,000	20.00%
Other Current Liabilities	5,000	10,000	5,000	100.00%