Business Daily from THE HINDU group of publications
Monday, Jul 16, 2007
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Business Daily from THE HINDU group of publications Monday, Jul 16, 2007 ePaper |
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Mentor
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Accountancy Summarised P&L account
P. V. Rathnam The following accounting information and financial ratios of PQR Ltd relate to the year ended December 31, 2006: I) Accounting information: Gross profit — 15 per cent of sales. Net profit — 8 per cent of sales. Raw materials consumed — 20 per cent of works cost. Direct wages — 10 per cent of works. Stock of raw materials — three months’ usage. Stock of finished goods — 6 per cent of works cost. Debt collection period — 60 days. All sales are on credit II) Financial ratios: Fixed assets to sales — 1:3 Fixed assets to current assets — 13:11 Current ratio — 2:1 Long-term loans to current liabilities — 2:1 Capital to reserves and surplus — 1:4 If value of fixed assets as on December 31, 2006, amounted to Rs 26 lakh, prepare a summarised profit and loss (P&L) account of the company for the year ended December 31, 2006, and also the balance-sheet as on December 31, 2006. Solution: WN1: Fixed assets to sales — 1:3 Fixed assets, Rs 26 lakh. Hence, sales (3 x 26) = Rs 78 lakh. WN2: Fixed assets to current assets = 13:11 Current assets = 11/13 of 26 = Rs 22 lakh WN3: Current ratio = 2, that is, CA/CL = 2 2 = 22/CL. Hence, current liabilities = Rs 11 lakh WN4: Long-term loan to current liabilities = 2:1 Long-term loan = 2 x 11 = Rs 22 lakh WN5: B/S as on December 31, 2006, is presented in Table 1. Capital to reserves and surpluses = 1:4 Capital = 1/5 of 15 = Rs 3 lakh Reserves and surplus = 4/5 of 15 = Rs 12 lakh WN6: Sales = Rs 78 lakh Less: GP, 15 per cent of sales = Rs 11.70 lakh Cost of goods sold or works cost = Rs 66.30 lakh WN7: Raw materials consumed, 20 per cent of 66.30 = Rs 13.26 lakh Direct wages 10 per cent of 66.30 = Rs 6.63 lakh Works overhead (B/F) = Rs 46.41 lakh Works cost = Rs 66.30 lakh WN8: Net profit, 8 per cent of 78 = Rs 6.24 lakh WN9: Stock of raw materials = three months’ usage 3/12 of 13.26 = Rs 3.315 lakh Stock of finished goods, 6 per cent of works cost 6 per cent of 66.30 = Rs 3.978 lakh WN10: Debt collection period = 60 days Note: All sales are assumed as credit sales Debtors = 60/365 of Rs 78 lakh = Rs 12.822 lakh WN11: Stock of raw materials = Rs 3.315 lakh Stock of finished goods = Rs 3.978 lakh Debtors = Rs 12.822 lakh Cash and bank (B/F) = Rs 1.885 lakh Current Assets = Rs 22 lakh
Solution: P&L account for the year ending December 31, 2006, is presented in Table 2. Balance sheet as on March 31, 1997, is as shown in Table 3.
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