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P.V. Ratnam

THE summarised balance-sheets of Prosperous Ltd for the years ended December 31, 2000, and December 31, 2001, are presented in Table 11.

The following additional information is obtained from the general ledger:

i) During the year 2001, an interim dividend of Rs 26,000 was paid.

ii) The assets of another company were purchased for Rs 60,000 payable in fully paid-up shares of the company. The assets consisted of stock, Rs 21,640; machinery, Rs 18,360; and goodwill, Rs 20,000. In addition, sundry purchase of plant was made totalling Rs 5,650.

iii) Income-tax paid during the year amounted to Rs 25,000.

iv) The net profit for the year before tax was Rs 62,530.

You are required to prepare a statement showing sources and application of funds for 2001 and a schedule setting out changes in working capital.

Working notes: The plant and machinery account, the share capital account and the provision for taxation accounts are presented in Tables 12, 13 and 14.

NP before tax — Rs 62,530

Add: Depreciation on plant and machinery — Rs 20,760

Depreciation on land and building (Rs 1,48,500 - Rs 1,44,250) — Rs 4,250

Funds from operations — Rs 87,540

Solution: The schedule of changes in working capital is shown in Table 15. The statement of sources and application of funds is shown in Table 16.

Note: A similar question appeared in the June 1992 CS (Intermediate) exam. The cash flow statement (new format) for the year ended December 31, 2001, is presented in Table 17.

Note: i) In Table 17, the figures in brackets indicate cash outflow; ii) the issue of share capital for Rs 38,360 — that is, for machinery Rs 18,360 and goodwill, Rs 20,000 — need not be shown in the funds flow statement because there is no flow of funds involved in this case. It is not source of funds; and iii) issue of share capital for Rs 21,640 (that is, for stock) should be shown in the funds flow statement because stock of Rs 21,640 has been reflected in the statement of working capital. That is, Rs 21,640 is to be shown as source of funds and purchase of stock by issue of shares is treated as application of funds.

Ratios and financial accounts

WITH the ratios and further information given in

, prepare Nishant's trading account and profit and loss account for the year ended December 2001 and the balance sheet as on December 31, 2001:

WN1: Fixed assets/capital = 5/4

Capital = Rs 15,00,000 x 4/5 = Rs 12 lakh

WN2: Capital to total liabilities = 1/2

Total liabilities = 12 x 2 = Rs 24 lakh

WN3: Net profit/capital = 1/5

Net profit = 1/5 of Rs 12 lakh = Rs 2.40 lakh

WN4: Net profit/sales = 20 per cent

Sales = 2.40/20 per cent = Rs 12 lakh

Less: GP, 25 per cent of Rs 12 lakh = Rs 3 lakh

Cost of sales = Rs 9 lakh

WN5: Stock turnover = Cost of sales / average stock

10 = Rs 9 lakh / average stock

Average stock = Rs 9 lakh / 10 = Rs 90,000

Average stock = Opening stock + closing stock / 2

90000 = OP + 1,50,000 / 2

Hence, opening stock = Rs 30,000

WN6: Fixed assets / total current assets = 5/7

Total current assets = 7/5 of Rs 15 lakh = Rs 21 lakh

Solution: The trading and P&L account and the balance-sheet for the year ended December 31, 2001 are presented in Table 19.

Note: A similar question was asked in the May 1992 CA (Intermediate) pape.

(Concluded)

(Suggested answers to the December 2002 CS (Intermediate) paper on cost and management accounting.)

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