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Q.3 Explain the concept of financial statement analysis. Why we do financial statement (04) analysis? Profit and Loss Account Particulars By Sales Particulars Rs Rs To Opening Stock: 1,000,000 Raw Materials 50,000 Add : Purchases 3,00,000 3,50,000 1,50,000 2,00,000 2,00,000 1,00,000 5,00,000 1,00,000 Less: Closing Stock of Raw Materials Raw Materials Consumed To Wages To Factory Expenses Cost of Production Add : Opening Stock of Finished Goods Less : Closing Stock of Finished Goods Cost of Goods Sold To Gross Profit cld 6,00,000 1,00,000 5,00,000 5,00,000 1,000,000 50,000 By Gross Profit b'd 50,000 1,000,000 5,00,000 To Administrative Expenses To Selling and Distribution Expenses Operating Expenses To Operating Profit c/d 1,00,000 4,00,000 2,50,000 To Loss on Sale of Plant 2,50,000 4,00,000 50,000 By Operating Profit 10,000 bid To Interest on Debenture By Profit on Sale of investment 60,000 (Non-operating 3,90,000 income) 50,000 Non-operating Expenses To Net Profit 5,00,000 5,00,000

Q.3 Explain the concept of financial statement analysis. Why we do financial statement (04) analysis? Profit and Loss Account Particulars By Sales Particulars Rs Rs To Opening Stock: 1,000,000 Raw Materials 50,000 Add : Purchases 3,00,000 3,50,000 1,50,000 2,00,000 2,00,000 1,00,000 5,00,000 1,00,000 Less: Closing Stock of Raw Materials Raw Materials Consumed To Wages To Factory Expenses Cost of Production Add : Opening Stock of Finished Goods Less : Closing Stock of Finished Goods Cost of Goods Sold To Gross Profit cld 6,00,000 1,00,000 5,00,000 5,00,000 1,000,000 50,000 By Gross Profit b'd 50,000 1,000,000 5,00,000 To Administrative Expenses To Selling and Distribution Expenses Operating Expenses To Operating Profit c/d 1,00,000 4,00,000 2,50,000 To Loss on Sale of Plant 2,50,000 4,00,000 50,000 By Operating Profit 10,000 bid To Interest on Debenture By Profit on Sale of investment 60,000 (Non-operating 3,90,000 income) 50,000 Non-operating Expenses To Net Profit 5,00,000 5,00,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Q.3 Explain the concept of financial statement analysis. Why we do financial statement (04) analysis? Profit and Loss Account Particulars To Opening Stock: Rs Particulars Rs By Sales 1,000,000 Raw Materials 50,000 3,00,000 3,50,000 1,50,000 2,00,000 2,00,000 Add : Purchases Less: Closing Stock of Raw Materials Raw Materials Consumed To Wages To Factory Expenses Cost of Production Add : Opening Stock of Finished 1,00,000 5,00,000 1,00,000 Goods 6,00,000 1,00,000 Less : Closing Stock of Finished Goods Cost of Goods Sold 5,00,000 To Gross Profit c/d 5,00,000 1,000,000 5,00,000 To Administrative Expenses To Selling and Distribution Expenses Operating Expenses To Operating Profit c/d 1,000,000 50,000 By Gross Profit b'd 50,000 1,00,000 4,00,000 2,50,000 50,000 By Operating Profit 10,000 bid 2,50,000 4,00,000 To Loss on Sale of Plant To Interest on Debenture By Profit on Sale of investment 60,000 (Non-operating 3,90,000 income) Non-operating Expenses 50,000 To Net Profit 5,00,000 5,00,000 Balance Sheet Rs. Liabilites 1,00,000 Creditors 1,00,000 Bills Payable Assets Rs. Plant and Machinery Land and Building Furniture 1,00,000 50,000 50,000 Fixed Assets Bank Balances Sundry Debtors Liquid Assets Stock of Raw Materials Stock of Finished Goods 2,50,000 Current Liabilities 50,000 Working Capital 150,000 2,50,000 100,000 150,000 Capital Employed 5.00.000 150,000 Long-Term Debt: 100,000| 12 % Debenture 2,00,000 4,00,000 Shareholders' Fund Less: Preference Share Capital Equity Shareholders' Fund or Net Worth Net Worth 3,00,000 1,00,000 Current Assets 2,00,000 Represented by: Equity Share Capital Retained Earnings Equity Shareholders Net Worth 1,00,000 1,00,000 2,00,000 Calculate the following ratios: 1) Gross profit ratio 4) Operating ratio 7) Absolute liquid ratio 10) Debt equity ratio 13) Current ratio 16) Liquid ratio 19) Proprietary ratio (21) 02) Net profit ratio 05) Return on investment ratio 06) Retum on capital employed ratio 08) Stock turnover ratio 11) Creditor's turnover ratio 14) Fixed assets turnover ratio 15) Overall profitability ratio 17) Capital turnover ratio 20) Capital gearing ratio 03) Operating profit ratio 09) Earning per equity share ratio 12) Working capital turnover ratio 18) Net profit to net worth 21) Debtor's turmover ratio
Transcribed Image Text:Q.3 Explain the concept of financial statement analysis. Why we do financial statement (04) analysis? Profit and Loss Account Particulars To Opening Stock: Rs Particulars Rs By Sales 1,000,000 Raw Materials 50,000 3,00,000 3,50,000 1,50,000 2,00,000 2,00,000 Add : Purchases Less: Closing Stock of Raw Materials Raw Materials Consumed To Wages To Factory Expenses Cost of Production Add : Opening Stock of Finished 1,00,000 5,00,000 1,00,000 Goods 6,00,000 1,00,000 Less : Closing Stock of Finished Goods Cost of Goods Sold 5,00,000 To Gross Profit c/d 5,00,000 1,000,000 5,00,000 To Administrative Expenses To Selling and Distribution Expenses Operating Expenses To Operating Profit c/d 1,000,000 50,000 By Gross Profit b'd 50,000 1,00,000 4,00,000 2,50,000 50,000 By Operating Profit 10,000 bid 2,50,000 4,00,000 To Loss on Sale of Plant To Interest on Debenture By Profit on Sale of investment 60,000 (Non-operating 3,90,000 income) Non-operating Expenses 50,000 To Net Profit 5,00,000 5,00,000 Balance Sheet Rs. Liabilites 1,00,000 Creditors 1,00,000 Bills Payable Assets Rs. Plant and Machinery Land and Building Furniture 1,00,000 50,000 50,000 Fixed Assets Bank Balances Sundry Debtors Liquid Assets Stock of Raw Materials Stock of Finished Goods 2,50,000 Current Liabilities 50,000 Working Capital 150,000 2,50,000 100,000 150,000 Capital Employed 5.00.000 150,000 Long-Term Debt: 100,000| 12 % Debenture 2,00,000 4,00,000 Shareholders' Fund Less: Preference Share Capital Equity Shareholders' Fund or Net Worth Net Worth 3,00,000 1,00,000 Current Assets 2,00,000 Represented by: Equity Share Capital Retained Earnings Equity Shareholders Net Worth 1,00,000 1,00,000 2,00,000 Calculate the following ratios: 1) Gross profit ratio 4) Operating ratio 7) Absolute liquid ratio 10) Debt equity ratio 13) Current ratio 16) Liquid ratio 19) Proprietary ratio (21) 02) Net profit ratio 05) Return on investment ratio 06) Retum on capital employed ratio 08) Stock turnover ratio 11) Creditor's turnover ratio 14) Fixed assets turnover ratio 15) Overall profitability ratio 17) Capital turnover ratio 20) Capital gearing ratio 03) Operating profit ratio 09) Earning per equity share ratio 12) Working capital turnover ratio 18) Net profit to net worth 21) Debtor's turmover ratio
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