Analysis Of Financial Statements

Common Size Statement of Profit and Loss: 

Explanation: Common size percentages are calculated by expressing each item as a percentage of Revenue from Operations: 

1. Other Income: For A Ltd: For B Ltd:  

2. Expenses: For A Ltd: For B Ltd:

3. Profit Before Tax:

Comparative Statement of Profit and Loss: 

 Explanation: For each item: 

1. Revenue from Operations:  

2. Employee Benefit Expenses:  

3. Other Expenses:

To solve the problem, we need to calculate the cash flows from investing and financing activities based on the provided information.

A) Cash Flow from Investing Activities

1. Sale of Machinery:
- Cost of Machinery Sold: ₹ 8,00,000
- Accumulated Depreciation: ₹ 50,000
- Book Value of Machinery Sold: ₹ 8,00,000 - ₹ 50,000 = ₹ 7,50,000
- Sale Price: ₹ 6,50,000
- Cash received from the sale of machinery: ₹ 6,50,000

2. Purchase of Plant and Machinery:
We need to calculate the actual cash outflow on the purchase of plant and machinery:
- Opening Plant and Machinery (Gross): ₹ 16,00,000
- Closing Plant and Machinery (Gross): ₹ 21,50,000
- Add: Cost of Machinery sold
- ₹ 16,00,000 + Purchase of Machinery - ₹ 8,00,000 = ₹ 21,50,000
- Purchase of Machinery = ₹ 21,50,000 - ₹ 16,00,000 + ₹ 8,00,000 = ₹ 13,50,000
- Cash used in the purchase of plant and machinery: ₹ 13,50,000

3. Purchase of Non-current Investment:
- Decrease in Non-current investment ₹4,00,000 - ₹3,00,000 = ₹1,00,000

Cash Flow from Investing Activities:
- Cash from sale of machinery: ₹ 6,50,000
- Purchase of Machinery: (₹ 13,50,000)
- Purchase of Non-current investment: ₹1,00,000
- Net Cash Used in Investing Activities: ₹6,50,000 - ₹13,50,000 - ₹1,00,000 = (₹8,00,000)

B) Cash Flow from Financing Activities

1. Increase in Share Capital:
- Increase in Share Capital: ₹ 12,00,000 - ₹ 10,00,000 = ₹ 2,00,000
- Cash received from the issue of share capital: ₹ 2,00,000

2. Redemption of Debentures:
- Decrease in Debentures: ₹ 10,00,000 - ₹ 6,00,000 = ₹ 4,00,000
- Cash used for the redemption of debentures: (₹ 4,00,000)

3. Increase in Reserves and Surplus:
- Increase in Reserves and Surplus: ₹ 4,00,000 - ₹ 3,00,000 = ₹ 1,00,000
- Cash received from the increase in reserves: ₹ 1,00,000

Cash Flow from Financing Activities:
- Cash received from the issue of share capital: ₹ 2,00,000
- Cash used for the redemption of debentures: (₹ 4,00,000)
- Cash received from the increase in reserves: ₹ 1,00,000
- Net Cash Used in Financing Activities: ₹2,00,000 - ₹4,00,000 + ₹1,00,000 = (₹1,00,000)

Answers:
- (a) Cash Flows from Investing Activities: (₹8,00,000)
- (b) Cash Flows from Financing Activities: (₹1,00,000)

Comparative Statement of Profit and Loss

Explanation:

1. Revenue from Operations: Increased from ₹20,00,000 to ₹24,00,000, showing an increase of ₹4,00,000 or 20%.

2. Cost of Materials Consumed: Increased from ₹4,00,000 to ₹6,00,000, showing an increase of ₹2,00,000 or 50%.

3. Employee Benefit Expenses: Increased from ₹2,00,000 to ₹4,00,000, showing a significant increase of ₹2,00,000 or 100%.

4. Profit Before Tax (PBT): Revenue-Cost of Materials-Employee Benefit expenses. So, it becomes 2400000-600000-400000=1400000 and 2000000-400000-200000=1400000. Increased from ₹14,00,000 to ₹14,00,000, showing an increase of ₹0 or 0%.

5. Tax: Tax is calculated at 50% on PBT. Increased from ₹7,00,000 to ₹7,00,000, showing an increase of ₹0 or 0%.

6. Profit After Tax (PAT): PBT - Tax. Increased from ₹7,00,000 to ₹7,00,000, showing an increase of ₹0 or 0%.

To solve the problem, we need to identify the correct period for which short-term highly liquid investments qualify as cash equivalents based on the conditions given in the question.

1. Understanding the Condition:
Short-term highly liquid investments qualify as cash equivalents if they are readily convertible into known amounts of cash and have an insignificant risk of changes in value. Additionally, these investments should be acquired within a specific period from the date of acquisition.

2. Correct Option:
According to the guidelines for cash equivalents, the correct period within which these investments qualify is 3 months or less. This ensures that these investments are close enough to cash to be considered part of the company’s liquidity.

3. Analyzing the Options:

• (A) 6 months or less: Incorrect, as cash equivalents must have a shorter maturity period.
• (B) 9 months or less: Incorrect, the period should be shorter for cash equivalents.
• (C) 12 months or less: Incorrect, this period is too long for an item to qualify as a cash equivalent.
• (D) 3 months or less: Correct, investments must be converted into cash within 3 months to be considered cash equivalents.

Final Answer:
Correct Option: (D) 3 months or less

To solve the problem, we need to identify the base against which each item in the "Common Size Income Statement" is expressed as a percentage.

1. Understanding Common Size Income Statement:
In a common size income statement, each line item is expressed as a percentage of a key figure, which helps to compare financial performance across companies or periods.

2. Analyzing the Options:

• (A) Total Income: This would include all income sources, but in the context of a common size income statement, this is not the most common base for expressing expenses or profits.
• (B) Total Expenses: This is also not the base in a common size income statement.
• (C) Profit After Tax: While profit after tax is a key figure, it is not typically the base for expressing items in a common size income statement.
• (D) Revenue from Operations: Correct — In a common size income statement, each item is usually expressed as a percentage of the total revenue from operations. This provides insight into the proportion of each item relative to the company's revenue.

Final Answer:
Correct Option: (D) Revenue from Operations

To solve the problem, we need to evaluate the statements given and identify which of the options correctly classifies the tools used in financial statement analysis.

1. Understanding the Question:
We need to identify which of the following tools is not a part of the "Analysis of Financial Statements" as per the options provided.

2. Analyzing the Options:

• (A) Income Statement: The Income Statement is a fundamental financial statement that reports a company's financial performance over a specific accounting period. It is part of financial statement analysis, but it is not a "tool" used for analysis. Hence, it can be considered Incorrect as a tool of analysis.
• (B) Ratio Analysis: Ratio analysis is indeed a key tool in financial statement analysis. It involves analyzing various ratios derived from the financial statements to assess a company's performance. Hence, it is Correct.
• (C) Comparative Statements: Comparative Statements are often used in financial analysis to compare financial data over multiple periods. This is a tool used in analysis. Hence, Incorrect.
• (D) Cash Flow Statement: The Cash Flow Statement is another core financial statement, and it is used in financial analysis to assess the company's cash inflows and outflows. Hence, it is Incorrect as it is a tool of analysis.

3. Conclusion:
The correct answer is that the Income Statement is not a tool of Analysis of Financial Statements, as it is a financial statement used in analysis but not a method or tool for analysis.

Final Answer:
Correct Option: (A) Income Statement

Step 1: Calculate Cost of Revenue from Operations

For 2023–24:
Revenue = 40,00,000
Cost = 60% of Revenue = 0.60 × 40,00,000 = 24,00,000

For 2022–23:
Revenue = 20,00,000
Cost = 50% of Revenue = 0.50 × 20,00,000 = 10,00,000

Step 2: Calculate Profit Before Tax (PBT)

2023–24:
PBT = Revenue – Cost – Employee Benefit Expenses
⇒ 40,00,000 - 24,00,000 - 8,00,000 = 8,00,000

2022–23:
PBT = 20,00,000 - 10,00,000 - 6,00,000 = 4,00,000

Step 3: Calculate Tax

Tax Rate = 25% for both years
2023–24 Tax = 25% of 8,00,000 = 2,00,000
2022–23 Tax = 25% of 4,00,000 = 1,00,000

Step 4: Calculate Profit After Tax (PAT)

2023–24: 8,00,000 - 2,00,000 = 6,00,000
2022–23: 4,00,000 - 1,00,000 = 3,00,000

Comparative Statement of Profit and Loss of X Ltd.

for the year ended 31^st March, 2024