Statement Analysis Tools

CBSE Test Paper 01

What financial statement lists assets from current to long term?
1. Statement of retained statement
2. Income statement
3. Cash flow statement
4. Balance sheet
Which of the following is the technique of financial statement analysis?
1. Trend analysis
2. Common‐size statement
3. All of these
4. Comparative statement
Which of these are limitation of Financial statements:
1. Measuring of solvency
2. Measuring of earning capacity or profitability
3. Measuring of financial strength
4. Static statements
The tool of Financial analysis is
1. Trend analysis
2. Credit decision
3. Vertical analysis
4. Horizontal analysis
The lenders provide loan capital to the ________.
1. None of these
2. Both of these
3. Company
4. Industry
Analyzing changes and trend in the ________ of previous years helps the management in forecasting and planning.
What are the Current Liabilities?
What is the meaning of Common Size Balance Sheet?
Give two objectives of Comparative Financial Statements.

With the help of the following information obtained from the books of Raj Silk Mills, prepare Comparative Statement of Profit and Loss for the year ended 31st March 2016:

Particulars	31st March 2016	31st March 2015
Revenue from Operations	300% of the Cost of Materials Consumed	200% of the Cost of Materials Consumed
Expenses :
Cost of Materials Consumed	₹ 12,00,000	₹ 10,00,000
Other Expenses	20% of the Cost of Materials Consumed	10% of the Cost of Materials Consumed
Tax	50%	50%

Prepare Common-size Statement of Profit and Loss from the following information:

Particulars	31st March 2019	31st March 2018
Revenue from Operations	₹ 10,00,000	₹ 7,50,000
Other Income	₹ 1,00,000	₹ 75,000
Purchases of Stock-in-Trade	₹ 7,50,000	₹ 6,00,000
Change in Inventories of Stock-in-Trade	₹ (50,000)	₹ 10,000
Other Expenses	₹ 10,000	₹ 7,500
Rate of Income Tax	50%	50%

Prepare a Comparative Statement of Profit & Loss of Ahmed Ltd., with the help of the following information:

	31.3.2018	31.3.2017
Revenue from Operations	₹ 8,00,000	₹ 5,00,000
Purchase of Stock in Trade	4,20,000	2,40,000
Changes in Inventories	80,000	60,000
Employee Benefit Expenses*	20,000	40,000
Other Expenses	40,000	30,000
Income Tax	50%	40%

* Employee Benefit Expenses means expenses incurred on employees. It includes expenses such as salaries and wages, contribution to Provident Fund, staff welfare, etc.

Following are the Balance Sheets of Hind Ltd. for two consecutive years:

Hind Ltd.
BALANCE SHEETS
as at 31st March............. (Figures in thousand ₹)

Particulars		Note No.	31.3.2017	31.3.2016
I.	EQUITY AND LIABILITIES:		₹	₹
	(1) Shareholder’s Funds:
	{a) Share Capital		3,300	2,800
	(b) Reserves and Surplus		1,400	1,000
	(2) Non-Current Liabilities:
	Long-term Borrowings		510	600
	(3) Current Liabilities :
	(a) Short term Borrowings		860	600
	(b) Trade Payables		430	250
			6,500	5,250
II.	ASSETS:
	(1) Non-Current Assets		3,630	2,130
	(2) Current Assets
	(a) Inventory		1,100	1,500
	(b) Trade Receivables		1,400	1,280
	(c) Cash and Cash Equivalents		370	340
			6,500	5,250

You are required to prepare a Comparative Balance Sheet and Comment upon the changes.

From the following balance sheets of HP Ltd. as at 31st March, 2019 prepare comparative balance sheet:

	Particulars	31st March 2019 (Rs.)	31st March 2018 (Rs.)
I.	Equity and liabilities
	1. Shareholders funds
	(a) Share capital:
	(i) Equity share capital	12,50,000	5,00,000
	(ii) Preference share capital	2,50,000	2,50,000
	(b) Reserves and surplus	3,00,000	4,50,000
	2. Non-current liabilities
	Long-term borrowings
	12% Debentures	9,50,000	5,50,000
	Loan from directors	2,50,000	2,00,000
	3. Current liabilities
	(a) Short-term borrowings	3,50,000	1,75,000
	(b) Trade payables	2,00,000	1,00,000
	(c) Short-term provisions	50,000	25,000
	Total	36,00,000	22,50,000
II.	Assets
	1. Non-current assets
	Fixed assets: (Tangible)	22,50,000	15,00,000
	2. Currents assets
	(a) Inventories	4,50,000	2,50,000
	(b) Trade receivables	8,00,000	4,50,000
	(b) Cash and cash equivalents	1,00,000	50,000
	Total	36,00,000	22,50,000

What is the importance of comparative statements? Illustrate your answer with particular reference to comparative income statement.

CBSE Test Paper 01
Statement Analysis Tools

Solution

(d) Balance sheet
Explanation: Balance sheet
(c) All of these
Explanation: All of these
(d) Static statements
Explanation: Static statements
(a) Trend analysis
Explanation: Trend analysis
(c) Company
Explanation: Company
Financial data
Current Liabilities are liabilities which are expected to be settled within a year or operating cycle.
A common size balance sheet is a statement in which total of assets or equity & liabilities is assumed to be equal to 100 and all the figures are expressed as percentage of the total.
1. To make the data simpler and more understandable:- The main aim of preparing comparative financial statements is to put the data for a number of years in simpler and comparable form.
2. To indicate the trend:- Another aim of comparative financial statements is to indicate the trend of change by putting the figures of production, revenue from operations, expenses, and profits, etc. for a number of years side-by-side.

COMPARATIVE STATEMENT OF PROFIT AND LOSS
for the years ended 31st March 2015 and 2016

Particulars		Note No.	31st March 2015	31st March 2016	Absolute Change (Increase or Decrease)	Percentage Change (Increase or Decrease)
	1		2	3	4	5
			A	B	(B-A = C)	C/A $\times$ 100 = D
I.	Revenue from Operations		₹ 20,00,000	₹ 36,00,000	₹ 16,00,000	% 80.00
II.	Less: Expenses
	(a) Cost of Materials Consumed		10,00,000	12,00,000	2,00,000	20.00
	(b) Other Expenses		1,00,000	2,40,000	1,40,000	140.00
	Total Expenses		11,00,000	14,40,000	3,40,000	30.91
III.	Profit before Tax (I - II)		9,00,000	21,60,000	12,60,000	140.00
IV.	Less: Tax		4,50,000	10,80,000	6,30,000	140.00
V.	Profit after Tax (III-IV)		4,50,000	10,80,000	6,30,000	140.00

COMMON-SIZE STATEMENT OF PROFIT AND LOSS for the years ended 31st March 2018 and 2019

Particulars	Note No.	Absolute Amounts		Percentage of Revenue from Operations (Net Sales)
		31st March, 2018 (₹)	31 st March, 2019 (₹)	31st March, 2018 (%)	31st March, 2019 (%)
1. Revenue from Operations		7,50,000	10,00,000	100.00	100.00
II. Other Income		75,000	1,00,000	10.00	10.00
III. Total Revenue (I + II)		8,25,000	11,00,000	110.00	110.00
IV. Expenses
(a) Purchases of Stock-in-Trade		6,00,000	7,50,000	80.00	75.00
(b) Change in Inventories of Stock-in-Trade		10,000	(50,000)	1.33	(5.00)
(c) Other Expenses		7,500	10,000	1.00	1.00
Total Expenses		6,17,500	7,10,000	82.33	71.00
V. Profit before Tax (III - IV)		2,07,500	3,90,000	27.67	39.00
VI. Less: Income Tax		1,03,750	1,95,000	13.83	19.50
VII. Profit after Tax (V - VI)		1,03,750	1,95,000	13.84	19.50

Ahmed Ltd.
COMPARATIVE STATEMENT OF PROFIT & LOSS
for the years ended 31st March 2017 and 2018

Particulars		Note No.	2016-17	2017-18	Absolute Change (Increase or Decrease)	Percentage Change (Increase or Decrease)
	1		2	3	4	5
			A	B	(B -A = C)	C/A $\times$ 100 = D
			₹	₹	₹	%
I.	Revenue from Operations		5,00,000	8,00,000	3,00,000	60.00
II.	Less: Expenses
	Purchase of Stock in Trade		2,40,000	4,20,000	1,80,000	75.00
	Change in Inventories*		60,000	80,000	20,000	33.33
	Employee Benefit Expenses		40,000	20,000	(20,000)	(50.00)
	Other Expenses		30,000	40,000	10,000	33.33
	Total Expenses		3,70,000	5,60,000	1,90,000	51.35
III.	Profit before Tax (I - II)		1,30,000	2,40,000	1,10,000	84.62
IV.	Less: Tax		52,000	1,20,000	68,000	130.77
V.	Profit after Tax (III - IV)		78,000	1,20,000	42,000	53.85

*Changes in Inventories means Opening Stock less Closing Stock.

Hind Ltd.
COMPARATIVE BALANCE SHEET
as at 31st March 2016 and 2017 (Figures in thousand ₹)

Particulars		Note No.	31.3.2016	31.3.2017	Absolute Change (Increase or Decrease)	Percentage Change (Increase or Decrease)
	1		2	3	4	5
			A	B	(B-A = C)	C/A $\times$ 100 = D
I	EQUITY AND LIABILITIES:		₹	₹	₹	%
	(1) Shareholder’s Funds:
	(a) Share Capital		2,800	3,300	500	17.86
	(b) Reserves and Surplus		1,000	1,400	400	40.00
	(2) Non-Current Liabilities :
	Long term Borrowings		600	510	(90)	(15.00)
	(3) Current Liabilities
	(a) Short term Borrowings		600	860	260	43.33
	(b) Trade Payables		250	430	180	72.00
	TOTAL		5,250	6,500	1,250	23.81
II.	ASSETS
	(1) Non-Current Assets		2,130	3,630	1,500	70.42
	(2) Current Assets:
	(a) Inventory		1,500	1,100	(400)	(26.67)
	(b) Trade Receivables		1,280	1,400	120	9.38
	(c) Cash and Cash Equivalents		340	370	30	8.82
	TOTAL		5,250	6,500	1,250	23.81

Comparative Balance Sheet

Particulars	31.03.2018	31.03.2019	Absolute change	%age change
	(A)	(B)	(C) = (B-A)	(D) = (C/A) x 100
	Rs.	Rs.	Rs.	%
I. Equity and liabilities
1. Shareholders funds:
(a) Share capital:
Equity share capital	500000	1250000	750000	150%
Preference share capital	250000	250000	.....	.....
(b) Reserves and surplus	450000	300000	(150000)	(33.33%)
2. Non-current liabilities:
(a) Long-term borrowings:
12% Debentures	550000	950000	400000	72.73%
Loan from directors	200000	250000	50000	25%
3. Current liabilities	300000	600000	300000	100%
	2250000	3600000	1350000	60%
II. Assets
1. Non-current assets:
(a) Fixed assets:
Tangible assets	1500000	2250000	750000	50%
2. Currents assets:
(a) Inventories	250000	450000	200000	80%
(b) Trade receivables	450000	800000	350000	77.77%
(b) Cash and cash equivalents	50000	100000	50000	100%
	2250000	3600000	1350000	60%

The following are the importance of Comparative Statements.
1. Easy to Forecast: The Comparative analysis of profitability and operational efficiency of a business over a period of time helps in analysing the trend and also assists the management to forecast and draft various future plans and policy measures accordingly.
2. Easy for Drawing Conclusion: The presentation of comparative statement is so effective that it enables the analyst to draw conclusion quickly and easily and that too without any ambiguity.
3. Easy Detection of Problems: By comparing the financial data of two or more years, the financial management can easily detect the problems. While comparing the data, some items may have increased while others have decreased or remained constant. The comparative analysis not only enables the management in locating the problems but also helps them to put various budgetary controls and corrective measures to check whether the current performance is aligned with that of the planned targets.
4. Simple Presentaion: The Comparative Statements present the financial data in a simpler form. Moreover, the year-wise data of the same items are presented side-by-side, which not only makes the presentation clear but also enables easy comparisons (both intra-firm and inter-firm) conclusive.

Statement Analysis Tools - Test Papers