Practice problems:

Basic Accounting

Final Accounts

Ratio Analysis

Funds Flow & Cash Flow Statement

Cost Volume Profit Analysis

Decision Making

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Accounting Concepts
Problem No. AC 1

Anil has prepared the trial balance for his business at the year-end which inter alia contains:
Furniture & Equipment Rs. 50,000; Debtors Rs. 8,25,000; Depreciation Rs. 5,000.

On scrutiny he however notices that air-condition machine purchased during the year for Rs.
25,000/- has been wrongly included in the balance of sundry debtors. Depreciation rate applicable
for furniture & equipment is 10%.

You are requested to show the required changes to be made in the income statement and balance
sheet to give effect to the above. Journal entries NOT required.

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Final Accounts
Problem No. FA 1

After taking into consideration the following adjustments you are requested to prepare a Trading
and Profit & Loss Account as on 31.3.08 and a Balance Sheet as on that date from the following
Trial Balance of Mr. Amar:
1. Stock could not be taken on 31.3.08. It was taken on 5.4.08 and found to be Rs. 8,000.
Between 1.4.08 and 4.4.08 stock costing Rs. 1,500 were sold
2. One quarter of the insurance premium relates to the next year
3. Depreciate furniture by 15%
4. Loan to Badshah carries 8% and loan from Chandan carries 6% interest p.a. respectively
5. Provide 5% for doubtful debts
6. Rs. 1,000 paid to Badshah was incorrectly recorded as salaries
7. Rs. 500 worth stock was withdrawn by Mr. Amar

Trial balance as on 31.03.08 of M/s Amar

Particulars Rs Particulars Rs
Stock (1.4.07) 6,000 Capital 40,000
Salaries 6,000 Returns Outward 500
Drawings 6,000 Loan from Chandan 5,000
Carriage Inwards 1,000 Outstanding Rent 100
Carriage Outwards 500 Accounts payable 13,000
Returns Inward 800 Liabilities for Expenses 1,900
Loan to Badshah 3,000 Provision for bad debts 1,000
Rent 1,200 Discount 300
Purchases 60,000 Sales 73,700
Account Receivables 30,000 Rent from sub-letting 500
Advertisement 3,000
Bad debts 500
Discount 600
Cash 200
Furniture 3,000
Goodwill 5,000
Wages 100
Insurance premium 600
Bank balance 8,500
Total 1,36,000 Total 1,36,000

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Problem No. FA 2

The following balances were extracted from the books of Mr. V. Giri as on 31.12.2007

Particulars Rs. Particulars Rs.

Bad Debts 1,400 Interest & Bank Charges 400
Bank Loan 15,000 Manufacturing Expenses 9,500
Building 25,000 Manufacturing Wages 34,500
Capital 80,000 Motor Car 12,000
Cash at Bank 4,200 Opening Stock 34,200
Cash in Hand 1,120 Plant & Machinery 20,000
Factory Fuel & Power 1,280 Provision for Doubtful Debts 2,000
Factory Lighting 950 Purchase Returns 1,740
Freight on Purchase 1,860 Purchases 1,02,000
Freight on Sales 2,140 Salaries 15,850
Furniture 10,000 Sales 2,50,850
General Expenses 8,200 Sales Returns 3,100
Goodwill 25,000 Sundry Creditors 45,560
Insurance & Tax 4,250 Sundry Debtors 78,200

Prepare a Trading and Profit & Loss Account and a Balance Sheet as on 31.12.07 after taking into
account the following additional information:
1. The selling price of stock as on 31.12.07 was Rs. 45,000. The goods were usually sold at
33.33% profit on selling price.
2. Depreciate - Furniture 5%, Machinery - 10%
3. The motor car is estimated to have a useful life of 12 years after which it would have no
value
4. Provision for doubtful debts should equal 5% of the debtors balance
5. A commission of 1% of the gross profit is to be provided to the Works manager
6. A commission of 2% on the net profit (after charging Works Managers commission) is to be
credited to the General Manager. All commissions are indirect expenses.

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Ratio Analysis
Problem No. FS 1

From the following information presented by P. Co. Ltd. For the year ended 31.12.2007, prepare
the Balance Sheet

Sales to Net Worth 5 times

Current Liabilities to Net Worth 50%
Total Debts to Net Worth 60%
Fixed Assets to Net Worth 60%
Current Ratio 2:1
Sales to Stock 10 times
Debtors' Turnover 9 times
Annual Sales Rs.15,00,000
40% of the sales were made on cash.

Problem No. FS 2

From the information below and the abridged balance sheet of Y M Ltd. as at 31st March 2009 find
out:
Debt-Equity Ratio
Proprietary Ratio
Total Liabilities to Net Worth

Information:

1. Secured loan includes Bank Overdraft Rs. 200 lakhs and Term Loan Rs. 600 lakhs

2. Unsecured Loan includes Rs. 100 lakhs short-term loan

3. Reserve & Surplus consists of

Rs. In Lakhs
a. General Reserve 200
b. Profit & Loss Account 400
c. Revaluation Reserve 100
d. Investment Allowance Reserve 100

4. Share Capital consists of

a. Equity Share Capital 1000
b. 8% Preference Share Capital 200

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Balance Sheet of Y M Ltd as at 31st March 2009

Particulars Rs in Lakhs Rs in Lakhs

Sources of Fund
Shareholder’s Fund
Share Capital 1200
Reserve & Surplus 800 200

Loan Funds
Secured Loan 800
Unsecured Loan 600 1400
3400

Application of Fund
Fixed Assets:
Gross Block 3000
Less Accumulated Depreciation 900
2100
Capital Work in Progress 600 2700
Investment 200

Current Assets Loans & Advances

Inventories 600
Sundry Debtors 400
Interest Accrued 50
Cash & Bank 100
Loans & Advances 120
1270
Less: Current Liabilities & Provision
Sundry Creditors 230
Tax Provision 300
Proposed Dividend 240
770 500
3400

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Funds Flow & Cash Flow
Problem No. FC 1

From the following particulars prepare a Funds Flow Statement for the year ended 31st December,
2008:
Rs.
1. Issue of shares 50,000
2. Net Profit during the year 17,000
3. Purchase of land 20,000
4. Purchase of investment 40,000
5. Sale of plant 10,000
6. Depreciation charged 3,000
7. Dividend receivable 1,000
8. Decrease in working capital 9,000
9. Redemption of debentures 10,000
10. Redemption of preference shares 20,000
11. Dividend paid 5,000
12. Payment of tax 5,000
13. Sale of investment 7,000
14. Transfer to reserve 5,000

Problem No. FC 2

The summarized Balance Sheets of AS Ltd. as at 31.12.2007 & 31.12.2008 are given:

Liabilities Rs. Rs. Assets Rs. Rs.

Loan from Friend - 40,000 Cash 22,000 30,000
Bills Payable 24,000 16,000 Debtors 80,000 70,000
Creditors 50,000 1,04,000 Stock 50,000 60,000
Loan from Bank 86,000 1,20,000 Machinery 40,000 28,000
Capital 1,32,000 68,000 Land & Building 1,00,000 1,60,000
2,92,000 3,48,000 2,92,000 3,48,000

Additional Information:
1. Net Loss for the year 2008 amounted to Rs. 26,000.
2. During the year a machine costing Rs. 10,000 (accumulated depreciation Rs. 4,000) was sold
for Rs. 5,000. The provision for depreciation against machinery as on 31.12.07 was Rs. 12,000
and on 31.12.08.was Rs. 14,000.

You are required to prepare the Cash Flow Statement for the year ended 31.12.2008.

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Cost-Volume-Profit Analysis
Problem No. CV 1

If margin of safety is Rs. 240000 (40% of sales) and PV Ratio is 30% calculate:

1. Break-even sales
2. Amount of profit on sales of Rs. 900000

Problem No. CV 2

A company producing a single product sells it at Rs. 50 per unit. Unit variable cost is Rs. 35 and
fixed cost amounts to Rs. 12 lakhs per annum. With this data you are required to calculate:

1. P/V Ratio and break-even sales

2. New break-even sales if variable cost increases by Rs. 3 per unit without increase in selling
price
3. Increase in sales required if profits are to be increased by Rs. 24 lakhs
4. Percentage increase/decrease in sales volume units to off-set
a. An increase of Rs. 3 in variable cost per unit
b. A 10% increase in selling price without affecting existing profits quantum
5. Quantum of advertisement expenditure permissible to increase sales by Rs. 1.2 lakhs
without affecting existing profits quantum

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Decision Making
Problem No. DM 1

XY Ltd. is manufacturing three household products A, B and C and selling them in a competitive
market. Details of current demand, selling price and cost structure are given below.

Particulars A B c

Expected demand (units) 10000 12000 20000

Selling Price per unit (Rs.) 20 16 10
Variable cost per unit (Rs.):
Direct material (Rs. 10/kg) 6 4 2
Direct Labor (Rs. 15/hr) 3 3 1.50
Variable Overheads 2 1 1
Fixed overheads per unit 5 4 2

The company is frequently affected by acute scarcity of raw material and high labor turnover.
During the next period it is expected to have one of the following situations:
1. Raw materials available will be only 12100 kg
2. Direct labor hours available will be only 5000 hrs
3. It may be possible to increase sales of any one product by 25% without any additional fixed
costs but by spending Rs. 20000 on advertisement. There will be no shortage of materials or
labor
Suggest the best production plan in each case and the resultant profit that the company would
earn according to your suggestion.

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