Financial Accounting and Analysis Assignment

1. Given

Cost for Purchase of Machinery 4 years back = Rs.15, 00,000/-

Selling Price at year end = Rs.8, 00,000/-
Depreciation rate = @20%

Solution

YEAR COST YEARLY ACCUMULATED VALUES

DEPRECIATION DEPRECIATION

1 15,00,000 3,00,000 3,00,000 12,00,000

2
15,00,000 2,40,000 5,40,000 9,60,000
3
15,00,000 1,92,000 7,32,000 7,68,000
4
15,00,000 1,53,600 8,85,600 6,14,400
SALES PROCEED 8,00,000

PROFIT = Rs.1,85,600

2. The accounting cycle is a basic, eight-step process for completing a company’s

bookkeeping tasks. It provides a clear guide for the recording, analysis, and final
reporting of a business’ financial activities.
The accounting cycle is used comprehensively through one full reporting period.
Thus, staying organized throughout the process’s timeframe can be a key element that
helps to maintain overall efficiency

Accounting Cycle Steps

 Analyze and record transactions

The first step in the accounting cycle is gathering records of your business
transactions—receipts, invoices, bank statements, things like that—for the current
accounting period. This is the raw financial information that needs to be translated
into something useful.

 Recording in the Journals

To simplify the recording process, special journals are often used for transactions
that recur frequently such as sales, purchases, cash receipts, and cash
disbursements. A general journal is used to record those that cannot be entered in
the special books. Transactions are recorded in chronological order and as they
occur. Journals are also known as Books of Original Entry.

 Posting to the Ledger

Also known as Books of Final Entry, the ledger is a collection of accounts that
shows the changes made to each account as a result of past transactions, and their
current balances. After the posting all transactions to the ledger, the balances of
each account can now be determined.
  Unadjusted Trial Balance
Next comes preparing an unadjusted trial balance, which happens at the end of the
accounting period. The first step to preparing an unadjusted trial balance is
totalling up all the debits and credits in each of your company’s accounts, and
calculating a total balance for each individual account.

 Adjusting Entries
Adjusting entries are prepared as an application of the accrual basis of accounting.
At the end of the accounting period, some expenses may have been incurred but
not yet recorded in the journals. Some income may have been earned but not
entered in the books.

 Adjusted Trial Balance

An adjusted trial balance may be prepared after adjusting entries are made and
before the financial statements are prepared. This is to test if the debits are equal
to credits after adjusting entries are made.

 Financial Statements
When the accounts are already up-to-date and equality between the debits and
credits have been tested, the financial statements can now be prepared. The
financial statements are the end-products of an accounting system.

 Closing Entries
Temporary or nominal accounts, i.e. income statement accounts, are closed to
prepare the system for the next accounting period. Temporary accounts include
income, expense, and withdrawal accounts. These items are measured
periodically.

 Post-Closing Trial Balance

In the accounting cycle, the last step is to prepare a post-closing trial balance. It is
prepared to test the equality of debits and credits after closing entries are made.
Since temporary accounts are already closed at this point, the post-closing trial
balance contains real accounts only.

3.a

 Earnings per share (EPS) = Net Income / No. of ordinary shares

Earnings per share (EPS) = 3,250,000 / 500,000 = Rs.6.5 per share

Net Income = Profit before tax – Income Tax

PBT = 50,00,000
Less Tax @35% = 17,50,000
Net Income = 32,50,000

 Dividend payout ratio = Dividends paid / Net Income

Dividend payout ratio = 1,000,000 / 3,250,000 = 30.8%

 Price earnings ratio = Market Price per share / Earnings per share
Price earnings ratio = 200 / 6.5 = 30.8 times
3.b

Cash flow from Investing Activities

Plant acquired = 1,60,000
Claim received for loss of plant in fire = 45,500
Unsecured loans given to subsidiaries = 5,95,000
Interest on loan received from subsidiary companies = 72,500
Net Cash used in investing activities = 6,37,000

Reasons for the classification of above activities as inflow /outflow are

 Plant acquired: Since it is a capital expenditure, so it would be categorized as cash

outflow under the category of investing activities.
 Claim received for loss of plant in fire: Since it is a fixed asset & of capital nature,
so any disposal proceeds / claims would also be treated as capital receipt under
investing activities.
 Unsecured loans given to subsidiaries: We have given loans to the subsidiaries;
hence it is a cash outflow.
 Interest on loan received from subsidiary companies: Here, the company has
received interest against the loan provided to the subsidiaries; hence it is a cash inflow
and will be categorized under investing activities.