PRM 2017-19 Date: 7/09/2017

Financial Accounting Duration: 2.5 Hrs.

End Term Examination Roll No. _______

Q.1 Data from Prowess provides information of Infosys and HCL . Compare it and write your comments
on each ratio (5)

Infosys HCL
2013 2014 2015 2013 2014 2015
Profitability ratios (%)
Operating margin 30.3 29.1 30.3 37.5 44.7 40
Net profit margin 23.4 21.7 22.9 28 34.7 34.1
Return on net worth 27.7 26 25.7 42.9 45.7 35.3
Return on total assets 22.9 21.1 20 23.8 27.1 22.2
Liquidity ratios (times)
Current ratio 4.759 3.811 3.115 1.534 1.964 2.071
Debt to equity ratio 0 0 0 0.061 0.036 0.002
Interest cover 68.013 102.138 97.017
Efficiency ratios (times)
Total income / total assets 0.982 0.972 0.886 0.85 0.782 0.656
Sales / Net fixed assets 825.6 773.6 643.8 640.6 673.8 559.8
Total income / compensation to 1.96 1.927 2.016 2.753 3.024
employees 3.29 3.024 2.9
Each ratio
½ mark
Profitability ratios (%)
Operating margin : (EBIT/SALES) * 100

Operating Margin ratio is High in HCL it is good for HCL

Net profit margin: (EAT/Sales) *100

Net profit margin is also High in HCL it is good for HCL

Return on net worth (EAT/Equity shareholder’s Fund )*100

Return on net worth is more in HCL it is good for HCL

Return on total assets:((EBIT/Total assets) * 100 OR :((EAT/Total assets) * 100

Return on total assets is marginally high in HCL it is good for HCL

Liquidity ratios (times)

Current ratio CA/CL

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Current ratio is high in Infosys than ideal ratio. It indicates thay are running their business with more
debtors/inventory/cash-bank. HCL is managing their business with low Current assets. HCL is more
efficient

Debt to equity ratio= Long term Debt/Equity shareholders fund

Infosys has no debt while HCL has also very less debt. So both have enough space for borrowing in
future.

Interest cover: EBIT/Interest

Infosys has no debt while HCL has also very less debt. Interest coverage ratio of HCL is too high. It
indicates that they are earning almost 600 times more than interest HCL is paying on borrowing

Efficiency ratios (times)

Total income / total assets
This ratio is better in INFOSYS as they are earning more total income by usage of their total assets
compare to HCL

Sales / Net fixed assets

This ratio is better in INFOSYS as they are generating more sales by usage of their Net Fixed assets
compare to HCL

Total income / compensation to employees

This ratio is better in INFOSYS as their employees are generating more income compare to their
compensation received from a company compare to HCL

Q.2. Objective Questions (5)

1. Supplier examine Current and Quick ratios

2. Bank should look at the Debt equity and interest coverage ratios

3. Cost of major repair will be included in cost of asset if life or productivity is enhanced

4. How Non operating expenses and losses affect operating activity of Cash flow statement?

: Added back to profit at CFS in Operating activity.

5. Debtor’s/Accounts receivable turnover ratio indicates efficiency of collection policy/in how many
days are paying to organization/ how many times debtors are paying in a year

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Q.3 From the Common size statement of JSL stainless Ltd. March 31,2013 Give your comments on
Main headings of balance sheet . (5)

Description 31.0312 31.03.13

EQUITY and LIABILITIES
Shareholders fund
Share capital 0.24 0.25
Reserves & Surplus 13.67 8.68
13.91 8.93
Non Current Liabilities
Long term borrowings 49.16 53.03
Deferred Tax Liabilities 2.51 0.10
Other long term liabilities 0.08 0.73
Long Term Provisions 0.06 0.06
51.81 53.92
Current Liabilities
Short term borrowings 9.76 12.24
Trade Payables 12.96 18.00
Other current Liabilities 11.54 6.89
Short Term Provisions 0.01 0.02
34.28 37.15
100.00 100.00
ASSETS
Noncurrent Assets
Fixed Assets
Tangible Assets 62.15 59.32
Intangible Assets 0.03 0.02
Capital Work in progress 2.91 0.88
Intangible assets under development 0.03 0.05
Noncurrent Investments 1.08 1.04
Long term loans and advances 1.31 0.94
Other Noncurrent Assets 0.14 0.11
67.65 62.39
Current Assets
Current Investments 0.01 0.01
Inventories 17.23 19.83
Trade Receivables 9.60 11.55
Cash & Bank balances 1.05 0.53
Short term loans 4.44 5.69
Other current Assets 0.03 0.03
32.35 37.94
TOTAL 100.00 100.00

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 1 mark for each heading
1.Shareholders fund; It is more in Previous Year than Current Year. Main reason of
decrease is in Shareholders fund is decrease in Reserve and Surplus. Which is not a good
sign for a company
1. Non Current Liabilities: is marginally increased by almost 2% but long term borrowing is
increased as 4%. Increase in long term borrowing is not a good sign.
2. Current Liabilities: is increased by 3% due to increase in Short term borrowings and trade
payables
3. Noncurrent Assets: Is decreased by 5% due to decrease in Fixed assets and decrease in
Capital WIP
4. Current Assets: is increased by 5.5% due to increase in Inventories and increase in
Trade receivables. It indicates more amount is blocked in Inventory and in efficient
collection policy .

Q. 4Compare cash flow statements of Infosys and HCL and analyse their financial strength and weaknesses (5)
INFOSYS Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths 12 mths
Net cash flow from
operating activities 38,160 51,520 58,550 42,700 58,610 69,420 91,480 79,550
Net cash inflow from
investing activities -20,980 -1,850 -35,430 32,490 8,040 -30,080 -23,390 6,390
Net cash flow from
financing activities -7,590 -23,570 -15,540 -36,510 -23,330 -31,350 -31,440 -49,350
Net change in cash &
cash equivalents(cl-op) 9,590 26,100 7,580 38,680 43,320 7,990 36,650 36,590
Cash & cash equivalents
as at the start of the
year 54,700 64,290 90,390 112,970 151,650 195,570 204,010 241,000
Cash & cash equivalents
as at the end of the year 64,290 90,390 97,970 151,650 195,570 204,010 241,000 277,220

HCL Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

Net cash flow from
operating activities 10,389 5,291 7,257 14,835 21,343 39,955 59,667 50,662
Net cash inflow from
investing activities -1,136 3,778 -16,828 -4,991 -13,170 -27,894 -44,750 -14,936
Net cash flow from
financing activities -6,193 -2,279 5,807 -8,826 -8,371 -11,751 -13,977 -33,602
Net change in cash &
cash equivalents(cl-op) 3,059 6,790 -3,764 1,018 -198 309 940 2,124
Cash & cash equivalents 3,809 6,869 13,658 648 1,677 1,347 1,558 2,407

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 as at the start of the
year
Cash & cash equivalents
as at the end of the year 6,869 13,658 9,894 1,677 1,347 1,558 2,407 4,327

WORKING NOTE: TREND

INFOSYS
Net cash flow from operating
activities 100 135 153 112 154 182 240 208
Net cash inflow from investing
activities 100 9 169 -155 -38 143 111 -30
Net cash flow from financing
activities 100 311 205 481 307 413 414 650
Net change in cash & cash
equivalents(cl-op) 100 272 79 403 452 83 382 382
Cash & cash equivalents as at the
start of the year 100 118 165 207 277 358 373 441
Cash & cash equivalents as at the
end of the year 100 141 152 236 304 317 375 431

HCL
Net cash flow from operating
activities 100 51 -94 143 135 190 226 543
Net cash inflow from investing
activities 100 -333 -123 33 -6 10 31 69
Net cash flow from financing
activities 100 37 359 17 44 35 41 63
Net change in cash & cash
equivalents(cl-op) 100 222 144 24 20 23 35 63
Cash & cash equivalents as at the
start of the year 100 180 359 17 44 35 41 63
Cash & cash equivalents as at the
end of the year 100 199 144 24 20 23 35 63

Comment: 1 mark for each comment

Net cash flow from operating activities: it is more in Infosys but Infosys has increased it as double while HCL
has increased it as 5.5 times. So. HCL is in better condition
Net cash inflow from investing activities: Infosys had invested more in last year so Infosys is good
Net cash flow from financing activities: It is more in INFOSYS and it is not considered as good because it creats
liability too.
Cash & cash equivalents as at the start of the year: Infosys is keeping too high cash is not good but HCL is
managing it’s business with lesser cash is good sign
Cash & cash equivalents as at the end of the year: Infosys is keeping too high cash is not good but HCL is

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managing it’s business with lesser cash is good sign

Q.5.(1) When a fixed asset’s market value falls materially below its net book value and the decline in
value is deemed to be permanent ,the asset is considered Impaired (1)

(2)Suppose an asset is purchased for Rs. 8,60,000 .The asset has an estimated useful life of ten years and
a salvage value of Rs.40,000. Assume straight line depreciation determine book value of the asset after
two years. (1)

WN: 8,60,000 – 40,000 = 8,20,000 /10=82000Dep. PA.

82000*2= 164000.

Cost 860,000 - 164,000 accu.dep. = 6,96,000

(3) Lacasa sold one of its used deepfryers for Rs.50,000. The original cost of the fryer was Rs.1,50,000
and related accumulated depreciation at the time of sale was Rs.70,000.Calculate gain or loss on the
sale of the deep fryer.For what amount owner need to sell the fryer to generate no gain or loss?

Loss 30,000 (1)

Sell at Rs.80,000 (1)

(4)Whether each of the following is an item of Noncurrent asset

(a) Bus used for staff pick up –Yes (1/2)

(b) A fully depreciated car –Yes (1/2)

Q.6 Selected information from the 2017 financial statements of company A and Company B is given
below: (10)

Company A Company B
Profit before Interest and Tax 18,000 20,000
Interest Expense 3,000 14,400
Income Tax 7,000 2,500
Debt 20,000 60,000
Assets 70,000 90,000
Equity 35,000 20,000
Calculate Return on asset , Interest coverage ratio, Return on Equity, Debt equity and give your
comment on the basis of all ratios . Write down formula and compare ratios of both companies.

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 Company A Company B
ROA = (EBIT/ASSETS)*100 OR (EAT/Assets) 25.7% or 11.43 22.2% or 3.44 % 1+1
*100 %
2Interest coverage= EBIT/Interest 6 times 1.39 times 1+1
R2OE= (EAT/equity ) * 100 22.9 % 15.5 % 1+1
Debt equity=Debt/Equity 0.57 3 1+1
Comment 2
On the basis of above ratio we can assume that Company A is in better condition than B. ROA
is high in Company A. Interest coverage is also very high than company B.ROE is also more and
Debt equity ratio is lower than company B. Company A has more space for borrowing due to
lesser debt equity and higher interest coverage ratio.
Q.7 The Balance Sheets of A Ltd. As on 31-3-2014 and 31-3-2015 are given below. Prepare
Cash Flow Statement: (15)

Liabilities 2013-14 2014-15

Rs. Rs.
Share Capital 3,00,000 4,00,000
General reserve 1,70,000 2,00,000
P&L Account 60,000 75,000
18 % Debentures 2,00,000 1,40,000
Current Liabilities 1,20,000 1,30,000
Prov. For Income-tax 90,000 85,000
Proposed dividend 30,000 50,000
9,70,000 10,80,000
Assets 2013-04 2014-05
Rs. Rs.
Non Current Assets 5,70,000 6,60,000
12% Investments 1,00,000 80,000
Current Assets 2,70,000 3,20,000
Cash balance 30,000 20,000
9,70,000 10,80,000

During the year 2014-15, the company:

(1) Provided Rs.85,000/- as depreciation on Non Current assets
(2) Redeemed Debentures at Rs.105 that is with a premium of 5% on March 31, 2015
(3) At the end of the year sold some Trade Investments at a profit of Rs.10,000

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(A) Cash flow from Operating Activities Rs. Rs.
Profit (Diff.: 75,000 closing. – 60,000 85,000 15,000
opening) Depreciation
Deb. Red. Premium 3,000
General Reserve 30,000
Proposed Dividend (of current year) 50,000
Provision for Taxation 85,000
Debenture Interest 36,000
Interest on Investment - 12,000
Profit on sale of Investment - 10,000
Net Profit before changes in Working 282,000
Capital
Changes in Working Capital
+ Increase in current liabilities (1,30,000- +10,000
1,20,000)
- Increase in current assets -50,000 -40,000
2,42,000
Less: Payment of Tax 90,000
(a) Net Cash Flow from Operating Activities 1,52,000

(B) Cash flow from Investing Activities:

+ Sale of Investments 30,000
+ Interest on Investment +12,000
- Purchase of Non Current Assets (2 ticks) -
1,75,000
(b) Net Cash flow from Investing Activities -1,33,000

(C) Cash flow from Financing Activities:

+ Increase in Share Capital 1,00,000
- - Red. Of Debentures -63,000
- Debenture interest -36,000
- Payment of Dividend -30,000
(c ) Net Cash flow from Financing Activities -29,000
Increase in cash and cash equivalents -10,000
Opening cash balance and cash equivalents 30,000
Closing cash balance and cash equivalents 20,000

30 ticks 15 marks

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1 tick =1/2 mark

Dr. Noncurrent Assets Cr.

Balance b/d 5,70,000 Depreciation 85,000
PURCHASE – Cash/Bank A/c 1,75,000 Balance c/d 6,60,000
7,45,000 7,45,000