Financial Reporting_Issues for discussion_

Session 3
Recap:
a) Business Decisions: FD/ID/OD
b) Financial Items: Incomes/Expenses/Assets/Liabilities
c) Financial Statements: Balance sheet/Income Statement/Cash Flow Statement
d) Sources: Capital/Profit/Outsiders money
e) Assets: Cash and Other assets
f) Net-worth = Capital +Accumulated Profit Accumulated Losses
g) Debt-Equity Ratio = Outsiders Money/Owners money (This will be revised later)
1. Following are the transactions of A ltd.
Started business with cash: ` 100,000
Purchased shares of X ltd = ` 50,000
Availed 10% loan: `.200000
Purchased plant on credit from Mr.X = ` 50,000 (life = 5 years)
Paid rent for two years = ` 24,000
Paid advertisement agency = 15,000 ( to be charged over three years)
Purchased old painting for cash: `80000
Sold old paintings for cash at a profit of 20% on sales.
Dividend received from X ltd = ` 2000
Sold all shares for ` 65,000
Salary per month = ` 5000. Salary paid at the beginning of the next month.
Required: Financial Statements
2. Following are the transactions of A ltd.
A ltd started business by issuing 10,000 shares of ` 10 at ` 10.cash
Used the entire proceeds to buy stock of goods
Issues 1000 8% Bonds of 100 at ` 100 on 1st October 2009
Sold 40% of the stock for cash : ` 130000
Plant purchased on credit from Y: ` 25,000 ( life =5 years)
Electricity due but not paid: ` 15000
Sold balance stock on credit to Mr. M: ` 200000
Declared and distributed 10% dividend
Required: Financial Statements for the year

Some important issues covered in the above question

Business entity, Accrual concept, matching principle
Other incomes ( non-operating)
Dividend paid and dividend received
Revenue goods vs capital goods
Revenue expense vs capital expense
1

Financial Reporting_Issues for discussion_

Session 3

Deferred revenue expense

Depreciation vs amortisation

3. Following were the assets and sources of A ltd. as on 1st April 2010:
Plant = ` 45,000; Shares of X ltd = `.50,000; Stock = `.55,000;
Receivables =` 20,000; Cash =` 30,000
Assets were financed by Capital, Accumulated Profit and 10% Bonds in
the ratio of 1:3:1
Transactions for the first quarter (April- June):
Purchased goods for cash ` 10000.
Rent for the period: ` 6,000.
Sold 50% goods for cash: ` 80000
Invested Rs. 10000 in the local chit funds. Interest rate is 5% per month
received every month.
Purchased furniture on credit from Y: ` 10000
Other expenses per month: ` 5000.

Depreciation on plant = ` 5,000 (per annum)

Required: Financial Statements at the first quarter

4. Following the transactions of A ltd.
Transactions for the month of April
Started business with Capital of ` 50,000
Purchased furniture: ` 20,000
Purchased goods = ` 50,000 on credit from Y
40% of the goods sold for cash =` 50,000
Salary for the month paid = ` 10,000
Insurance for 3 months paid =`12,000
Rent for the month due but not paid = ` 10,000
Transactions during the month of May
Sold 50% of the goods available for cash = ` 30,000
Salary paid
Rent not paid
Paid Y: 70% of the money due.
Purchased Shares of XYZ ltd.: ` 18,000
Transactions during the month of June
Sold balance stock for ` 30,000
Rent paid for three month ( April, May, and June)
Salary paid
2

Financial Reporting_Issues for discussion_

Session 3
Required: Financial Statements