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Class 12-commerce NCERT Solutions Accountancy Chapter 4 - Analysis of Financial Statements

NCERT Solutions for CBSE Class 12 Commerce Accountancy Chapter Analysis of Financial Statements at TopperLearning help students understand the topics from this chapter. These solutions not only explain every unit but also provide solutions to the exercises. The detailed notes can help students perform well in the CBSE board exams as well as the competitive exams. For better learning, revision and practice, students can refer to our revision notes, video lessons, textbook solutions, past years’ papers, sample papers, MCQs, MIQs etc.

Analysis of Financial Statements Exercise 186

Solution SA 1

Commonly used techniques of Financial Statement Analysis:

  1. Comparative Financial Statements
  2. Common Size Financial Statements
  3. Trend Analysis
  4. Ratio Analysis
  5. Cash Flow Statement
  6. Fund Flow Statement

The above listed techniques can be classified on the following basis:

 A. On the basis of Comparison

  1. Inter-firm Comparison
    1. Comparative Statement (Balance Sheet, Profit and Loss Account) a
    2. Common Size Statement (of the same period)
    3. Ratio of Two or More Competitive Firms (of the same period)
    4. Cash Flow Statement of Two or More Competitive Firms
    5. Polygon, Bar Diagram
  2. Intra-firm  Comparison
    1. Comparative Statement (Balance Sheet, Profit and Loss Account) a
    2. Common Size Statement (of the same period)
    3. Ratio of Two or More Competitive Firms (of the same period)
    4. Cash Flow Statement of Two or More Competitive Firms
    5. Polygon, Bar Diagram
  3. Horizontal Comparison
  4. Vertical Comparison

B. On the basis of Time

  1. Inter-period Comparison
    1. Comparative Statement (two or more periods)
    2. Cash Flow Statement (two or more periods)
  2. Cross Sectional (Intra period) Comparison
    1. Common Size Statement
    2. Ratio Analysis

C. Horizontal Analysis

  1. Time Series
  2. Bar Diagram
  3. Polygon
  4. Comparative Statement
  5. Ratio Analysis  

D. Vertical Analysis

  1. Common Size Statement
  2. Pie Diagram 

Solution SA 2

Basis of Difference

Horizontal Analysis

Vertical Analysis

Meaning

It is a comparison of an item of the financial statement of one period or periods to its corresponding item of the base accounting period.

It is a comparison of items of the financial statement to the common item of the same accounting period.

Purpose

Its purpose is to find out the change in an item during an accounting period. The change is expressed either in absolute figures or in percentage or in both.

Its purpose is to determine the proportion of item/items to the common item of the same accounting period. The change is expressed either in ratio or in percentage.

Usefulness

It shows growth or decline of the item.

It helps in predicting and determining the future relative proportion of an item to the common item.

Solution SA 3

Analysis and interpretation refers to a critical and detailed examination of financial statements. The main purpose of analysis and interpretation is to present financial data in a manner which is easily understandable and self-explanatory. This not only helps accounting users to assess the financial performance of the business over a period of time but also helps them in decision making and policy and financial designing process.

 

Vaibhavi Ltd. Comparative Statement as on 31 March 2013 and 2014

Particulars

2012-13

2013-14

Absolute Change

% Change

Sales

Less: Cost of Goods Sold

1,00,000

60,000

1,50,000

78,000

50,000

18,000

50

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

 

Interpretation:

  1. Sales of the company has increased by 50% during the year 2013-14, whereas the cost of goods sold has also increased but at a lesser rate. From this, we can conclude that the company has followed an efficient sales strategy, consequent of which the gross profit of the company has increased by 80% compared to the previous year (2012-13).
  2. In 2013-14, operating expenses have also increased, but on the contrary, operating profit has increased at a higher rate than the rate of operating expenses.
  3. 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.

Solution SA 4

Financial analysis has a vast importance to various accounting users on various matters. Income statements, balance sheets and other financial data provide information about expenses, sources of income, profit or loss and help in examining the financial position of a business. These financial data are of no use until they are analysed. There are various tools and methods to analyse financial data such as ratio analysis and cash flow statements which make financial data to cater to the varying needs of various accounting users. Reasons in favour of financial analysis:

  1. It assists in evaluating the profit earning capacity and financial viability of a business.
  2. It assists in evaluating the long-term solvency of the business.
  3. It helps in evaluating the relative financial status of a firm in comparison to other competitive firms.
  4. It helps the management in the decision-making process, drafting various plans and in establishing an effective controlling system.

Solution SA 5

Financial statements which enable intra-firm and inter-firm comparisons of financial statements over a period of time are called comparative financial statements. These statements help accounting users to evaluate financial progress in relative terms. Comparative financial statements present financial data in a manner that is easily understandable and can be analysed without any ambiguity. Comparative financial statements enable meaningful comparisons only if the accounting policies and practices for the treatment of the items are the same over the period of study. Two comparative financial statements which are commonly prepared are

  1. Comparative Balance Sheet
  2. Comparative Income Statement

Solution SA 6

A common size statement represents the relationship between various items of financial statements and some common items (Net Sales and Total of Balance Sheet) in terms of percentage. 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. Likewise, different items of the 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 those of previous years (i.e. intra-firm comparison) and with the figures of other firms in the same industry (i.e. inter-firm comparison) as well. Analyses based on these statements are commonly known as Vertical Analyses.

Commonly prepared common size statements are

  1. Common Size Balance Sheet
  2. Common Size Income Statement

Analysis of Financial Statements Exercise 188

Solution NUM 1

 

Comparative Balance Sheet

as on March 31,2016 and 2017

Particulars

2016

Rs. 

2017

Rs. 

Absolute Change

Percentage 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

e. Cash and Cash Equivalents

25,000

10,000

(15,000)

(60)

Total

6,20,000

10,20,000

4,00,000

64.5

Solution NUM 2

Comparative Balance Sheet

as on March 31,2016 and 2017

Particulars

2016

(Rs.)

2017

(Rs.)

Absolute Change

Percentage 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 (Loan from IDBI)

1,00,000

3,00,000

2,00,000

200

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

60,000

80,000

 

 

a. Current Investments

 

 

20,000

33.3

b. Inventories (stock) 

90,000

1,05,000

15,000

16.6

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

Analysis of Financial Statements Exercise 189

Solution NUM 3

 

Comparative Income Statement

as on March 31,2016 and 2017 

Particulars

Note

No.

2014

Rs. 

2015

Rs. 

Absolute Change

Percentage Change

1. Revenue from Operations

 

2,16,000

92,000

(1,24,000)

 (57.4)

2. Other Income

 

10,000

20,000

10,000

100

3. Total Revenue (I + 2)

 

2,26,000

1,12,000

(1,14,000)

(50.44)

4. Expenses

 

 

 

 

 

a. Purchase of Stock- in- Trade

 

80,000

1,40,000

60,000

75

b. Change in Inventories 

 

30,000

(60,000)

(90,000)

(300)

c. Employee Benefit Expenses

 

5,000

10,000

5,000

100

d. Finance Costs

 

21,000

22,000

1,000

4.54

e. Depreciation and Amortization Expenses

 

5,000

10,000

5,000

100

f. Other Expenses

 

80,000

1,30,000

50,000

62.5

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 Returns
    Or
    Net Sales= Purchase + Manufacturing Expenses + Change in Inventory + Gross Profit - Sales Returns
    Net Sales (2016)=80,000+20,000+30,000+90,000-4,000
    Rs.2,16,000
    Net Sales (2017)=1,40,000+50,000-60,000-30,000-8,000
    Rs.92,000
  2. Calculation of Finance Cost
    Finance Cost = Interest on short-term loans + Interest on 10% Debenture
    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

Solution NUM 4

 

Comparative Income Statement

For the year ended March 31,2016 and 2017

Particulars

Note

No.

2016

Rs. 

2017

Rs. 

Absolute Change

Percentage Change

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)

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 Amortization Expenses

 

20,000

20,000

-

-

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

1,20,000

37.39

 


  1. Calculation of Net Purchases and Change in Inventory
    Net Purchase of Stock in Trade = Cash Purchase + Credit Purchase - Purchase Returns
    2016=1,20,000+1,50,000-4,000=Rs.2,66,000
    2017=40,000+60,000-60,000=Rs.94,000
    Change in Inventory=Opening Stock-Closing Stock
    2016=30,000-45,000=Rs.(15,000)
    2017=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

Analysis of Financial Statements Exercise 190

Solution NUM 5

Comparative Income Statement

For the year ended March 31,2016 and 2017

Particulars

Note

No.

2016

Rs. 

2017

Rs. 

Percentage of

Sales

 

2014

2015

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

 

4,28,0000

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

-

5.53

-

6. Profit After Tax

 

74,900

(6,000)

12,48

(0.75)

 

Working Notes:

Solution NUM 6

 

Common Size Balance Sheet

Particulars

Aditya Ltd.

Rs. 

Anjali 

Ltd.

Rs. 

% of

Sales

 

 

 

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

Total

10,00,000

12,00,000

100

100

II. Assets

 

 

 

 

1. Non - Current Assets

 

 

 

 

a. Fixed Assets

4,00,000

7,0,000

40

58.33

2. Current Assets

6,00,000

5,00,000

60

41.67

Total

10,00,000

12,00,000

100

100

               

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