NCERT Solutions for Class 12 Accountancy (Part 2) Chapter 4 Analysis of Financial Statements

NCERT
SOLUTIONS
CLASS - 12th

aglase .co

Book Name : Accountancy-II Ncert Solutions | Chapter-4 Accountancy

Class : 12th
Subject : Accountancy
Chapter : 4
Chapter Name : Analysis of financial Statements

Q1 List the techniques of Financial Statement Analysis.

Answer. The following are the commonly used techniques of Financial Statement analysis :
⮚ Comparative Financial Statements
⮚ Common Size Financial Statements
⮚ Trend Analysis
⮚ Ratio Analysis
⮚ Cash Flow Statement
⮚ Fund Flow Statement
The above listed techniques can be classified on the following basis:
A. On the basis of Comparison
1. Inter-firm Comparison
⮚ Comparative Statement (Balance Sheet, Profit and Loss Account)
⮚ Common size Statement (of the same period)
⮚ Ratio of two or more Competitive Firms (of the same period)
⮚ Cash Flow Statement of two or more Competitive firms
⮚ Polygon, Bar Diagram
2. Intra-firm Comparison
⮚ Comparative Statement (Balance Sheet, Profit and Loss Account)
⮚ Common size Statement (of the same period)
⮚ Ratio of two or more Competitive Firms (of the same period)
⮚ Cash Flow Statement of two or more Competitive firms
⮚ Polygon, Bar Diagram
3. Horizontal Comparison
4. Vertical Comparison
B. On the basis of Time
1. Inter-period Comparison
⮚ Comparative statement (two or more periods)
⮚ Cash Flow statement (two or more period) etc.
2. Cross Sectional (Intra-period) Comparison

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⮚ Common size statement
⮚ Ratio Analysis
C. Horizontal Analysis
⮚ Time series
⮚ Bar Diagram
⮚ Polygon
⮚ Comparative statement
⮚ Ratio Analysis
D. Vertical Analysis
⮚ Common size statement
⮚ Pie Diagram

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Q2 Distinguish between Vertical and Horizontal Analysis of financial data.

Answer.

Basis of
Horizontal Analysis Vertical Analysis
Difference
Meaning It refers to the comparison of an item It refers to the comparison of
of the financial statement of one itemitems of the financial
period or periods to its statement to the common item of
corresponding item of the base the same accounting period.
accounting period.
Purpose Its purpose is to determine the Its purpose is to determine the
change in an item during an proportion of item/items to the
accounting period. The change in common item of the same
the item is expressed either in accounting period. The change in
absolute figures or in percentage or the item is expressed either in
in both terms. ratio or in percentage terms.
Usefulness It indicates growth or decline of the It helps in predicting and
item. determining the future relative
proportion of an item to the
common item.

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Book Name : Accountancy-II Ncert Solutions | Chapter-4 Accountancy

Q3 State the meaning of Analysis and Interpretation.

Answer. Analysis and Interpretation refers to a systematic and critical examination of the
financial statements. It not only establishes cause and effect relationship among the various
items of the financial statements but also presents the financial data in a proper manner. The
main purpose of Analysis and Interpretation is to present the financial data in such a manner
that is easily understandable and self explanatory. This not only helps the accounting users to
assess the financial performance of the business over a period of time but also enables them in
decision making and policy and financial designing process.
Country Man Ltd Comparative statement as on March 31, 2010 and 2011
Absolute
Particular 2009–10 2010–11 % Change
Change
Sales 1,00,000 1,50,000 50,000 50
Less: Cost of Goods Sold 60,000 78,000 18,000 30
Gross Profit 40,000 72,000 32,000 80
Less: Operating Expenses:
Office and Administrative Exp. 8,000 10,000 2,000 25
Selling and Distribution Exp. 5,000 6,000 1,000 20
Operating Profit 27,000 56,000 29,000 107.4
Add: Other Income 3,000 4,800 1,800 60
Less: Non-operating Expenses 4,000 4,800 800 20
Profit Before Interest and Tax 26,000 56,000 30,000 115.38
Interest 2,000 1,800 (200) (10)
Profit before Tax 24,000 54,200 30,200 125.83
Less: 50% Income Tax 12,000 27,100 15,100 125.83
12,000 27,100 15,100 125.83

Absolute Change
Percentage Change=
Base year of 2009−10
Interpretation:
⮚ Sales of the company have increased by 50% during the year 2010−11
whereas the cost of goods sold has also increased but at a lesser rate. From
this, we can infer that the company has followed an efficient sales strategy

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consequent of which the gross profit of the company has increased by 80%
compared to the previous year (2009-10).
⮚ In 2010−11, operating expenses have also increased but on the contrary
operating profit has increased at a higher rate than the rate of operating
expenses.
⮚ Profit before interest and tax has also increased by 115.38% during these two years.
This indicates the improvement in the operating efficiency of the company.

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Q4 State the importance of Financial Analysis?

Answer. Financial Analysis has great importance to various accounting users on various
matters. Income Statements, Balance Sheets and other financial data provides information
about expenses and sources of income, profit or loss and also helps in assessing the financial
position of a business. These financial data are not useful until they are analysed. There are
various tools and methods such as Ratio Analysis, Cash Flow Statements that make the
financial data to cater varying needs of various accounting users.
The following are the reasons that advocate in favour of Financial Analysis:
⮚ It helps in evaluating the profit earning capacity and financial feasibility of a business.
⮚ It helps in assessing the long-term solvency of the business.
⮚ It helps in evaluating the relative financial status of a firm in comparison to other
competitive firms.
⮚ It assists management in decision making process, drafting various plans and also in
establishing an effective controlling system.

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Q5 What are Comparative Financial Statements?

Answer. Those financial statements that enable intra-firm and inter-firm comparisons of financial
statements over a period of time are called Comparative Financial Statements. In other words,
these statements help the accounting users to evaluate and assess the financial progress in the
relative terms. These statements express the absolute figures, absolute change and the
percentage change in the financial items over a period of time. Comparative Financial
Statements present the financial data in such a manner that is easily understandable and can
be analysed without any ambiguity. If the accounting policies and practices for the treatment of
the items are same over the period of study, only then the Comparative Financial Statements
enable meaningful comparisons.

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The following are the two Comparative Financial Statements that are commonly prepared:
⮚ Comparative Balance Sheet
⮚ Comparative Income Statements

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Q6 What do you mean by Common Size Statements?

Answer. These statements depict the relationship between various items of financial statements
and some common items (like Net Sales and the Total of Balance Sheet) in percentage terms.
In other words, various items of Trading and Profit and Loss Account such as Cost of Goods
Sold, Non-Operating Incomes and Expenses are expressed in terms of percentage of Net
Sales. On the other hand, different items of Balance Sheet such as Fixed Assets, Current
Assets, Share Capital etc. are expressed in terms of percentage of Total of Balance Sheet.
These percentage figures are easily comparable with that of the previous years’ (i.e. inter-firm
comparison) and with that of the figures of other firms in the same industry (i.e. inter-firm
comparison) as well.
The analyses based on these statements are commonly known as Vertical Analysis.
The following are commonly prepared Common Size Statements.
⮚ Common Size Balance Sheet
⮚ Common Size Income Statements

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Q1 Describe the different techniques of financial analysis and explain the limitations of financial
analysis.

Answer. The various techniques used in financial analysis are as follows:
⮚ Comparative Statements: These statements depict the figures of two or more accounting
years simultaneously that help to access the profitability and financial position of a
business. The Comparative Statements help us in analysing the trend of the financial
position of the business. These statements also enable us to undertake various types of
comparisons like inter-firm comparisons and intra-firm comparisons. It presents the
change in the financial items both in absolute as well as percentage terms. Therefore,
these statements help in measuring the efficiency of the business in relative terms. The
analyses based on these statements are known as Horizontal Analysis.
⮚ Common Size Statements: These statements depict the relationship between various
items of financial statements and some common items (like Net Sales and the Total of

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Book Name : Accountancy-II Ncert Solutions | Chapter-4 Accountancy

Balance Sheet) in percentage terms. In other words, various items of Trading and Profit
and Loss Account such as Cost of Goods Sold, Non-Operating Incomes and Expenses
are expressed in terms of percentage of Net Sales. On the other hand, different items of
Balance Sheet such as Fixed Assets, Current Assets, Share Capital, etc. are expressed
in terms of percentage of Total of Balance Sheet. These percentage figures are easily
comparable with that of the previous years’ (i.e. inter-firm comparison) and with that of
the figures of other firms in the same industry (i.e. inter-firm comparison) as well. The
analyses based on these statements are commonly known as Vertical Analysis.
⮚ Trend Analysis: This analysis undertakes the study of trend in the financial positions and
the operating performance of a business over a series of successive years. In this
technique, a particular year is assumed to be the base year and the figures of all other
years are expressed in percentage terms of the base year’s figures. These trends (or the
percentage figures) not only helps in assessing the operational efficiency and the
financial position of the business but also helps in detecting the problems and
inefficiencies.
⮚ Ratio Analysis: This technique depicts the relationship between various items of Balance
Sheet and the Income Statements. It helps in ascertaining the profitability, operational
efficiency, solvency, etc of a firm. The analysis expresses financial items in terms of
percentage, fraction, proportion and as number of times. It enables budgetary controls
by assessing the qualitative relationship among different financial variables. This
analysis provides vital information to different accounting users regarding the financial
position, viability and performance of a firm. It also facilitates decision making and policy
designing process.
⮚ Cash Flow Analysis: This analysis is presented in the form of a statement showing
inflows and outflows of cash and cash equivalents from operating, investing and
financing activities of a company during a particular period of time. It helps in analysing
the reasons of receipts and payments in cash and change in the cash balances during
an accounting year in a company.
Limitations of Financial Analysis
The limitations of Financial Analysis are :
⮚ Ignores Changes in the Price level
The financial analysis fails to capture the change in price level. The figures of different years are
taken on nominal values and not in real terms (i.e. not taking price change into considerations).
⮚ Misleading and Wrong Information
The financial analysis fails to reveal the change in the accounting procedures and practices.
Consequently they may provide wrong and misleading information.
⮚ Interim and Final Picture
The financial analysis presents only the interim report and thereby provides incomplete
information. They fail to provide the final and holistic picture.
⮚ Ignores Qualitative and Non-monetary Aspects
The financial analysis reveals only the monetary aspects. In other words, these analyses
consider only that information that can be expressed only in monetary terms. These analyses

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fail to disclose managerial efficiency, growth prospects, and other non-operational efficiency of a
business.
⮚ Accounting Concepts and Conventions
The financial analysis are based an accounting concepts and conventions. Therefore, the
analysis and conclusions based on such analyses may not be reliable. For example, the
analysis considers only the book-value of various items (i.e. according to the Going Concept)
and consequently ignores the present market value of those items. Hence, the analysis may not
be realistic.
⮚ Involves Personal Biasness
The financial analysis reflects the personal biasness and personal value judgments of the
accountants and clerks involved. There are different techniques used by different personnel for
charging depreciation (original cost or written-down value method) and also for inventory
valuation. The use of different techniques by different people reduces the effectiveness of the
financial analysis.
⮚ Unsuitable for Comparisons
Due to the involvement of personal value judgment, personal biasness and use of different
techniques by different accountant, various types of comparisons such as inter-firm and intra-
firm comparisons may not be possible and reliable.

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Q2 Explain the usefulness of trend percentages in interpretation of financial performance of a
company.

Answer. The Trend Analysis presents each financial item in percentage terms for each year.
These Trend Analyses not only help the accounting users to assess the financial performance of
the business but also assist them to form an opinion about various tendencies and predict the
future trend of the business.
Usefulness and Importance of Trend Analysis
The following are the various importance of Trend Analysis:
⮚ Assists in forecasting
The trends provided by Trend Analysis help the accounting users to forecast the future trend of
the business.
⮚ Percentage Terms
The trends are expressed in percentage terms. Analysing the percentage figures is easy and
also less time consuming.
⮚ User Friendly

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As the trends are expressed in percentage figures, so it is the most popular financial analysis to
analyse the financial performance and operational efficiency of the company. In other words,
one need not to have an in-depth and sophisticated knowledge of accounting in order to analyse
these percentage trends.
⮚ Presents a Broader Picture
The trend analysis presents a broader picture about the financial performance, viability and
operational efficiency of a business. Generally, companies prefer to present their financial data
for a period of 5 or 10 years in forms of percentage trends, whereas the other techniques of
Financial Analysis lack this popularity.

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Q3 What is the importance of comparative statements? Illustrate your answer with particular
reference to comparative income statement.

Answer. The following are the importance of Comparative Statements.
⮚ Simple Presentation
The Comparative Statements present the financial data in a simpler form. Moreover, the year-
wise data of the same items are presented side-by-side, which not only makes the presentation
clear but also enables easy comparisons (both intra-firm and inter-firm) conclusive.
⮚ Easy for Drawing Conclusion
The presentation of comparative statement is so effective that it enables the analyst to draw
conclusion quickly and easily and that too without any ambiguity
⮚ Easy to Forecast
The comparative analysis of profitability and operational efficiency of a business over a period of
time helps in analysing the trend and also assists the management to forecast and draft various
future plans and policy measures accordingly.
⮚ Easy Detection of Problems
By comparing the financial data of two or more years, the financial management can easily
detect the problems. While comparing the data, some items may have increased while others
have decreased or remained constant. The comparative analysis not only enables the
management in locating the problems but also helps them to put various budgetary controls and
corrective measures to check whether the current performance is aligned with that of the
planned targets.

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Q4 What do you understand by analysis and interpretation of financial statements? Discuss its
importance.

Answer. Financial Analysis has great importance to various accounting users on various
matters. Income Statements, Balance Sheets and other financial data provide information about
expenses and sources of income, profit or loss and also helps in assessing the financial position
of a business. These financial data are not useful until they are analysed. There are various
tools and methods such as Ratio Analysis, Cash Flow Statements that make the financial data
to cater varying needs of various accounting users.
The following are the reasons that advocate in favour of Financial Analysis:
⮚ It helps in evaluating the profit earning capacity and financial feasibility of a business.
⮚ It helps in assessing the long-term solvency of the business.
⮚ It helps in evaluating the relative financial status of a firm in comparison to other
competitive firms.
⮚ It assists management in decision making process, drafting various plans and also in
establishing an effective controlling system.

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Q5 Explain how common size statements are prepared giving an example.

Answer. The two Common Size Statements that are most commonly prepared are as follows.
⮚ Common Size Balance Sheet
⮚ Common Size Income Statements
Common Size Statement is prepared in a columnar form for analysis. In a Common Size
Statement each item of the financial statements is compared to a common item. The analyses
based on these statements are commonly known as Vertical Analysis.

The following are the columns prepared in a Common Size Statement.
⮚ Particulars Column: This column shows the various financial items under their respective
heads.
⮚ Amount Columns: These columns depict the amount of each item, sub-totals and the
gross total of a particular year.
⮚ Percentage or Ratio Columns: These columns show the proportion of each item to the
common item either in terms of percentage or ratio.

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The Common Size Statements can be presented in the following two ways.
Method 1
1. Percentage Column is shown beside the Amount Column of the year to which percentage
column belongs.

Year (2007) Year (2006)
Particulars % %
Rs Rs

Method 2
Amount Columns are shown first and their percentage columns are shown after the Amount
Columns.

Year (2007) Year (2008)
Particulars % 2007 % 2008
Rs Rs

The preparation of the Common Size Statements can be better understood by the help of the
following example.

Particulars Note No. 2012 2013
I. Equity and
Liabilities
1.
Shareholders’
Funds
(a) Equity 4,00,000 6,00,000
Share Capital
(b) Reserves 1,00,000 1,50,000
and Surplus
2. Non-

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Current
Liabilities
(a) Long-Term 3,00,000 3,20,000
Borrowings
3. Current
Liabilities
(a) Trade 2,00,000 2,50,000
Payables
Total 10,00,000 13,20,000

II. Assets
1. Non-
Current
Assets
(a) Fixed
Assets
(i) Tangible 5,00,000 6,75,000
Assets
(ii) Intangible 1,00,000 1,20,000
Assets
(b) Non- 1,50,000 2,00,000
Current
Investments
2. Current 2,50,000 3,25,000
Assets
Total 10,00,000 13,20,000
Common Size Balance Sheet as on….
Percentage of
Absolute Amount
Balance Sheet Total
Particulars Note No.
2012 2013 2012 2013
(Rs) (Rs) (%) (%)
I. Equity and Liabilities
1. Shareholders’ Funds
(a) Equity Share Capital 4,00,000 6,00,000 40 45.45
(b) Reserves and Surplus 1,00,000 1,50,000 10 11.36

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2. Non-Current Liabilities
(a) Long-Term Borrowings 3,00,000 3,20,000 30 24.24
3. Current Liabilities
(a) Trade Payables 2,00,000 2,50,000 20 18.94
Total 10,00,000 13,20,000 100 100

II. Assets
1. Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets 5,00,000 6,75,000 50 51.14
(ii) Intangible Assets 1,00,000 1,20,000 10 9.09
(b) Non-Current Investments 1,50,000 2,00,000 15 15.15
2. Current Assets 2,50,000 3,25,000 25 24.62
Total 10,00,000 13,20,000 100 100
Working Note:
Previous Year Absolute Figure
Percentage(Previous Year)= ∗100
Balance sheet total of previous year
current Year Absolute Figure
Percentage(Current Year)= ∗100
Balance Sheet total of Current Year
For example,
4,00,000
Percentage of Equity Share Capital(Previous Year)= ∗100=40
10,00,000
6,00,000
Percentage of Equity Share Capital(Current Year)= ∗100=45.45
13,20,000
Preparation
Step 1: Title of the Common Size Statement, i.e. ‘Common Size Balance Sheet’ is written on the
top of the statement.
Step 2: In the ‘Particulars’ column, the various items of the Balance Sheet are shown under the
headings of ‘Assets’ and ‘Equity and Liabilities’.
Step 3: In the ‘Amount’ column, amount of the items are shown in the ‘Year’ column to which
they belong
Step 4: The Assets and Liabilities are totaled and are shown separately for each year.

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Step 5: In the ‘Percentage’ column, the percentage of each item in comparison to the Total of
Balance Sheet are shown.

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Q1 Following are the balance sheets of Alpha Ltd. as at March 31st, 2016 and 2017:

2016 2017
Particulars
Rs. Rs.
I. Equity and
Liabilities
Equity share 2,00,000 4,00,000
capital
Reserves and 1,00,000 1,50,000
surplus
Long-term 2,00,000 3,00,000
borrowings
Short-term 50,000 70,000
borrowings
Trade payables 30,000 60,000
Short-term 20,000 10,000
provisions
Other current 20,000 30,000
liabilities
Total 6,20,000 10,20,000
II. Assets
Fixed assets 2,00,000 5,00,000
Non-current 1,00,000 1,25,000
investments
Current 60,000 80,000
investments
Inventories 1,35,000 1,55,000
Trade 60,000 90,000
receivables
Short term loans 40,000 60,000
and advances

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Cash at bank 25,000 10,000
Total 6,20,000 10,20,000

Answer.
Comparative Balance Sheet
as on March 31, 2016 and 2017
2016 2017 Absolute Percentage
Particulars
(Rs) (Rs) Change Change

I. Equity and Liabilities
1. Shareholder’s Fund
a. Equity Share Capital 2,00,000 4,00,000 2,00,000 100
b. Reserves and Surplus 1,00,000 1,50,000 50,000 50
2. Non-Current Liabilities
a. Long Term Borrowings 2,00,000 3,00,000 1,00,000 50
3. Current Liabilities
a. Short Term Borrowings 50,000 70,000 20,000 40
b. Trade Payables 30,000 60,000 30,000 100
c. Short Term Provisions 20,000 10,000 (10,000) (50)
d. Other Current Liabilities 20,000 30,000 10,000 50
Total 6,20,000 10,20,000 4,00,000 64.5
II. Assets
1. Non-Current Assets
a. Fixed Assets 2,00,000 5,00,000 3,00,000 150
b. Non Current Investments 1,00,000 1,25,000 25,000 25
2. Current Assets
a. Current Investments 60,000 80,000 20,000 33.3
b. Inventories 1,35,000 1,55,000 20,000 14.8
c. Trade Receivables 60,000 90,000 30,000 50
d. Short Term Loans and Advances 40,000 60,000 20,000 50

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e. Cash and Cash Equivalents 25,000 10,000 (15,000) (60)
Total 6,20,000 10,20,000 4,00,000 64.5

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Q2 Following are the balance sheets of Beta Ltd. at March 31st, 2016 and 2017:

2017 2016
Particulars
Rs. Rs.
I. Equity and
Liabilities
Equity share 4,00,000 3,00,000
capital
Reserves and 1,50,000 1,00,000
surplus
Loan from IDBI 3,00,000 1,00,000
Short-term 70,000 50,000
borrowings
Trade payables 60,000 30,000
Short-term 10,000 20,000
provisions
Other current 1,10,000 1,00,000
liabilities
Total 11,00,000 7,00,000
II. Assets
Fixed assets 4,00,000 2,20,000
Non-current 2,25,000 1,00,000
investments
Current 80,000 60,000
investments
Stock 1,05,000 90,000
Trade 90,000 60,000
receivables
Short term loans 1,00,000 85,000

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and advances
Cash and cash 1,00,000 85,000
equivalents
Total 11,00,000 7,00,000

Answer.
Comparative Balance Sheet
as on March 31, 2016 and 2017
2016 2017 Absolute Percentage
Particulars
(Rs) (Rs) Change Change

I. Equity and Liabilities
1. Shareholder’s Fund
a. Equity Share Capital 3,00,000 4,00,000 1,00,000 33.3
b. Reserves and Surplus 1,00,000 1,50,000 50,000 50
2. Non-Current Liabilities
a. Long Term Borrowings 1,00,000 3,00,000 2,00,000 200
(Loan from IDBI)
3. Current Liabilities
a. Short Term Borrowings 50,000 70,000 20,000 40
b. Trade Payables 30,000 60,000 30,000 100
c. Short Term Provisions 20,000 10,000 (10,000) (50)
d. Other Current Liabilities 1,00,000 1,10,000 10,000 10
Total 7,00,000 11,00,000 4,00,000 57.14
II. Assets
1. Non-Current Assets
a. Fixed Assets 2,20,000 4,00,000 1,80,000 81.8
b. Non Current Investments 1,00,000 2,25,000 1,25,000 125
2. Current Assets
a. Current Investments 60,000 80,000 20,000 33.3
b. Inventories (Stock) 90,000 1,05,000 15,000 16.6

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c. Trade Receivables 60,000 90,000 30,000 50
d. Short Term Loans and Advances 85,000 1,00,000 15,000 17.65
e. Cash and Cash Equivalents 85,000 1,00,000 15,000 17.65
Total 7,00,000 11,00,000 4,00,000 57.14

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Q3 Prepare Comparative Income Statement from the following information:

2016-17 2015-16
Particulars
Rs. Rs.
Freight 20,000 10,000
Outward
Wages 10,000 5,000
(office)
Manufactur 50,000 20,000
ing
Expenses
Stock (60,000) 30,000
adjustment
Cash 80,000 60,000
purchases
Credit 60,000 20,000
purchases
Returns 8,000 4,000
inward
Gross (30,000) 90,000
profit
Carriage 20,000 10,000
outward
Machinery 3,00,000 2,00,000
Charge 10,000 5,000
10%
depreciatio

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n on
machinery
Interest on 20,000 20,000
short-term
loans
10% 20,000 10,000
debentures
Profit on 20,000 10,000
sale of
furniture
Loss on 90,000 60,000
sale of
office car
Tax rate 40% 50%

Answer.
Comparative Income Statement
for the year ended March 31, 2016 and 2017
Absolute
Note 2015-16 2016-17 Percentage
Particulars Change
No. (Rs) (Rs) Change
(Rs)
1. Revenue from 2,16,000 92,000 (1,24,000) (57.4)
Operations
2. Other Income 10,000 20,000 10,000 100
3. Total Revenue (1 + 2) 2,26,000 1,12,000 (1,14,000) (50.44)
4. Expenses
a. Purchases of Stock-in- 80,000 1,40,000 60,000 75
Trade
b. Change in Inventories 30,000 (60,000) (90,000) (300)
c. Employee Benefit 5,000 10,000 5,000 100
Expenses
d. Finance Costs 21,000 22,000 1,000 4.54
e. Depreciation and 5,000 10,000 5,000 100
Amortisation Expenses
f. Other Expenses 80,000 1,30,000 50,000 62.5

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Total Expenses 2,21,000 2,52,000 31,000 14.03
5. Profit before Tax (3 – 4) 5,000 (1,40,000) (83,000) 16.6
Less: Income Tax 2,500 - (2,500) (100)
6. Profit After Tax 2,500 (1,40,000) (1,37,500) 55

Working Notes:
1. Calculation of Net Sales
Net Sales = Cost of Goods Sold + Gross Profit - Sales Return
or, Net Sales = Purchases + Manufacturing Expenses + Change in Inventory + Gross Profit -
Sales Return
Net Sales (2016) = 80,000 + 20,000 +30,000 + 90,000 - 4,000 = Rs 2,16,000
Net Sales (2017) = 1,40,000 + 50,000 - 60,000 - 30,000 - 80,000 = Rs 92,000
2. Calculation of Finance Cost
Finance Cost = Interest on short-term loans + Interest on 10% Debentures
Finance Cost (2016) = 20,000 + 1,000 = Rs 21,000
Finance Cost (2017) = 20,000 + 2,000 = Rs 22,000
3. Calculation of Other Expenses
Other Expenses = Freight Outward + Carriage Outward + Loss on sale of office car
Other Expenses (2016) = 10,000 + 10,000 + 60,000 = Rs 80,000
Other Expenses (2017) = 20,000 + 20,000 + 90,000 = Rs 1,30,000

Page : 185 , Block Name : Numerical questions

Q4 Prepare Comparative Income Statement from the following information:

2015-16 2016-17
Particulars
Rs. Rs.
Manufacturing 35,000 80,000
expenses
Opening stock 30,000 60% of closing stock
Sales 9,60,000 4,50,000

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Book Name : Accountancy-II Ncert Solutions | Chapter-4 Accountancy

Returns outward 4,000 (out of credit 6,000 (out of cash
purchase) purchase)
Closing stock 150% of opening 1,00,000
stock
Credit purchases 1,50,000 150% of cash
purchase
Cash purchases 80% of credit 40,000
purchases
Carriage outward 10,000 30,000
Building 1,00,000 2,00,000
Depreciation on 20% 10%
building
Interest on bank 5,000 -
overdraft
10% debentures 2,00,000 20,00,000*
Profit on sale of 10,000 20,000
copyright
Loss on sale of 10,000 20,000
personal car
Other operating 20,000 10,000
expenses
Tax rate 50% 40%

Answer.
Comparative Income Statement
for the years ended March 31, 2016 and 2017
Absolute
Note 2015-16 2016-17 Percentage
Particulars Change
No. (Rs) (Rs) Change
(Rs)
1. Revenue from Operations 9,60,000 4,50,000 (5,10,000) (53.13)
2. Other Income 10,000 20,000 10,000 100
3. Total Revenue (1 + 2) 9,70,000 4,70,000 (5,00,000) (51.55)
4. Expenses
a. Purchases of Stock-in-Trade 2,66,000 94,000 (1,72,000) (64.7)

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Book Name : Accountancy-II Ncert Solutions | Chapter-4 Accountancy

b. Change in Inventories (15,000) (40,000) (55,000) (366.7)
c. Finance Costs 25,000 20,000 (5,000) (20)
d. Depreciation and Amortisation 20,000 20,000 - -
Expenses
e. Other Expenses 30,000 40,000 10,000 33.33
Total Expenses 3,26,000 1,34,000 (1,92,000) 58.90
5. Profit before Tax (3 – 4) 6,44,000 3,36,000 (3,08,000) 47.83
Less: Income Tax 3,22,000 1,34,400 (1,87,600) 58.26
6. Profit After Tax 3,22,000 2,01,600 1,20,400 37.39

Working Notes:
1. Calculation of Net Purchases and Change in Inventory
Net Purchases of stock in trade=Cash purchases+ Credit purchases-Purchases return
2013=1,20,000+1,50,000-4,000=Rs 2,66,000
2014=40,000+60,000-6,000=RS 94,000
Change in inventory = Opening Stock – Closing stock
2013=30,000-45,000=Rs(15,000)
2014=60,000-1,00,000=Rs(40,000)
2. Calculation of Finance Cost
Finance Cost = Interest on Bank Overdraft + Interest on Debentures
Finance Cost (2016) = 5,000 + 20,000 = Rs 25,000
Finance Cost (2017) = 0 + 20,000 = Rs 20,000
3. Calculation of Other Expenses
Other Expenses = Carriage outward + Other operating expenses
Other Expenses (2016) = 10,000 + 20,000 = Rs 30,000
Other Expenses (2017) = 30,000 + 10,000 = Rs 40,000

Page : 186 , Block Name : Numerical questions

Q5 Prepare a Common-size income statement of Shefali Ltd. with the help of following
information:

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Book Name : Accountancy-II Ncert Solutions | Chapter-4 Accountancy

2015-16 2016-17
Particulars
Rs. Rs.
Sales 6,00,000 8,00,000
Gross 50% of 45% of sales
profit sales
Indirect 25% of 25% of gross profit
expense gross profit
Less: Cost 4,28,000 7,28,000
of goods
sold
Other 10,000 12,000
incomes
Income tax 30% 30%

Answer.
Common Size Income Statement
for the years ended March 31, 2016 and 20174
Percentage of
Note 2015-16 2016-17
Particulars Sales
No. (Rs) (Rs)
2015-16 2016-17

1. Revenue from Operations 6,00,000 8,00,000 100 100
2. Other Income 10,000 12,000 1.67 1.5
3. Total Revenue (1 + 2) 6,10,000 8,12,000 101.67 101.5
4.Expenses
a. Cost of Goods Sold 4,28,000 7,28,000 71.33 91
b. Other Expenses 75,000 90,000 12.50 11.25
Total Expenses 5,03,000 8,18,000 83.83 102.25
5. Profit before Tax (3 – 4) 1,07,000 (6,000) 17.83 (0.75)
Less: Income Tax 32,100 - 5.35 -
6. Profit After Tax 74,900 (6,000) 12.48 (0.75)

Working Notes:

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Book Name : Accountancy-II Ncert Solutions | Chapter-4 Accountancy

1. Calculation of Other Expenses
Other Expenses = Indirect Expenses = % of Gross Profit
2016=6,00,000×50%×25%=Rs 75,0002017=8,00,000×45%×25%=Rs 90,0002016=6,00,000×5
0%×25%=Rs 75,0002017=8,00,000×45%×25%=Rs 90,000

Page : 186 , Block Name : Numerical questions

Q6 Prepare a Common Size balance sheet from the following balance sheet of Aditya Ltd. and
Anjali Ltd.:

Aditya Ltd. Anjali Ltd.
Particulars
Rs. Rs.
I. Equity and Liabilities
a) Equity share capital 6,00,000 8,00,000
b) Reserves and surplus 3,00,000 2,50,000
c) Current liabilities 1,00,000 1,50,000
Total 10,00,000 12,00,000
II. Assets
a) Fixed assets 4,00,000 7,00,000
b) Current assets 6,00,000 5,00,000
Total 1,00,0000 12,00,000

Answer.
Common Size Balance Sheet

Aditya Ltd. Anjali Ltd. % of Total
Particulars
(Rs) (Rs) Aditya Ltd. Anjali Ltd.

I. Equity and Liabilities
1. Shareholder’s Fund
a. Equity Share Capital 6,00,000 8,00,000 60 66.67
b. Reserves and Surplus 3,00,000 2,50,000 30 20.83
2. Current Liabilities 1,00,000 1,50,000 10 12.5

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Book Name : Accountancy-II Ncert Solutions | Chapter-4 Accountancy

Total 10,00,000 12,00,000 100 100
II. Assets
1. Non-Current Assets
a. Fixed Assets 4,00,000 7,00,000 40 58.33
2. Current Assets 6,00,000 5,00,000 60 41.67
Total 10,00,000 12,00,000 100 100

Page : 186 , Block Name : Numerical questions

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