Analysing Common Size Profit and Loss

Q.

Pankaj, Naresh and Saurabh are partners sharing profit in the ratio of 3 : 2 :1. Naresh retired from the firm due to his illness. On that date, the Balance Sheet of the firm was as follows

$\begin{array}{ccccccc}& & & & & & \\ & & & & \text{Balance Sheet}& & \\ \text{Dr}& & & & \text{as on March 31, 2007}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt.(Rs)}& \text{Assets}& & \text{Amt.(Rs)}\\ \text{General Reserve}& & \text{12, 000}& \text{Bank}& & \text{7, 600}\\ \text{Sundry Creditors}& & \text{15, 000}& \text{Debtors}& \text{6, 000}& \\ \text{Bills Payable}& & \text{12, 000}& \text{(-)Provision for}& \underset{–}{\left(400\right)}& \text{5, 600}\\ \text{Outstanding Salary}& & \text{2, 200}& \text{Doubtful Debts}& & \\ \text{Provision for Legal Damages}& & \text{6, 000}& \text{Stock}& & \text{9, 000}\\ \text{Capitals}& & & & & \\ \text{Pankaj}& \text{46, 000}& & \text{Furniture}& & \text{41, 000}\\ \text{Naresh}& \text{30, 000}& & \text{Premises}& & \text{80, 000}\\ \text{Saurabh}& \underset{–}{20,000}& \text{96, 000}& & & \\ & & \overline{\underset{–}{\underset{–}{1,43,200}}}& & & \overline{\underset{–}{\underset{–}{1,43,200}}}\end{array}$

Additional Information

(i) Premises have appreciated by 20%, stock depreciated by 10% and provision for doubtful debts was to be made 5% on debtors. Further, provision for legal damages is to be made for Rs. 1, 200 and furniture brought up to Rs.45, 000.

(ii) Goodwill of the firm be valued at Rs. 42, 000.

(iii) Rs. 26, 000 from Naresh's Capital account be transferred to his loan account and balance be paid through bank; if required, necessary loan may be obtained from Bank.

(iv) New profit sharing ratio of Pankaj and Saurabh is decided to be 5:1.

Give the necessary ledger accounts the balance sheet of the firm after Naresh's retirement.

Q.

What entries for the redemption of debentures will be done when (a) debentures are redeemed by annual drawings out of profits; (b) debnetures are redeemed by drawing a lot of capital; and (c) debentures are redeemed by purchasing them in the open market when sinking fund for the redemption of debentures is not maintained - (i) when out of profit, and (ii) when out of capital?

Q.

Explain the treatment of goodwill at the time of retirement or on the event of death of a partner.

Q.

Distinguish between Income and Expenditure Account and Profit and Loss Account.

Q.

Ram, Shyam and Mohan were in partnership sharing profits and losses in the proportions of 3 : 2 : 1. On 1st April, 2011, Shyam retires from the firm. On that date, their Balance Sheet was as follows :

$\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Rs}& \text{Assets}& & \text{Rs}\\ \text{Trade Creditors}& & 30,000& \text{Cash in hand}& & 90,000\\ \text{Bills Payable}& & 27,000& \text{Debtors}& 1,60,000& \\ \text{Expenses owing}& & 45,000& \text{Less : Provision}& \underset{–}{10,000}& 1,50,000\\ \text{Reserve Fund}& & 1,05,000& \text{Stock}& & 1,20,000\\ \text{Workmen's Compensation}& & & \text{Factory Premises}& & 2,25,000\\ \text{Reserve}& & 48,000& \text{Investments}& & 80,000\\ \text{Capitals :}& & & \text{Loose Tools}& & 40,000\\ \text{Ram}& 2,00,000& & & & \\ \text{Shyam}& 1,50,000& & & & \\ \text{Mohan}& \underset{–}{1,00,000}& \underset{–}{4,50,000}& & & \\ & & \underset{–}{\underset{–}{7,05,000}}& & & \overline{\underset{–}{\underset{–}{7,05,000}}}\end{array}$

The terms were:

(1) Goodwill of the firm to be valued at 2 times of Average Super Profits of last three years. Taking into consideration the risk of the business, normal profits of the firm are estimated at Rs 5, 00, 000 every year year. But actual profits of last three years ending 31st March were as 2009 : Rs 6, 00, 000, 2010 : Rs 5, 50, 000, 2011 : Rs 5, 75, 000.

(2) Expenses owing to be brought down to Rs 37, 500.

(3) Investments are revalued at Rs 72, 000. Ram took over investments at this value.

(4) Factory premises is to be revalued at Rs 2, 43, 000; and Loose tools at Rs 36, 000.

(5) Provision for doubtful Debts to be increased by Rs 19, 500.

(6) Claim on account of Workmen's Compensation is Rs 18, 000.

(7) Shyam be paid Rs 50, 000 in cash and balance due to him treated as a loan carrying interest @ 6% per annum.

Show Journal entry for goodwill adjustment, prepare necessary ledger accounts and opening balance sheet of the continuing partners.

Q.

Dinker and Ravinder were partners sharing profits and losses in the ratio of 2:1. The following balances were extracted from the books of account, for the year ended December 31, 2005.

$\begin{array}{ccc}\text{Account Name}& \text{Amt. (Dr)}& \text{Amt. (Cr)}\\ \text{Capital}& & \\ \text{Dinker}& & 2,35,000\\ \text{Ravinder}& & 1,63,000\\ \text{Drawings}& & \\ \text{Dinker}& 6,000& \\ \text{Ravinder}& 5,000& \\ \text{Opening Stock}& 35,100& \\ \text{Purchase and Sales}& 2,85,000& 3,75,800\end{array}$

$\begin{array}{ccc}\text{Account Name}& \text{Amt. (Dr)}& \text{Amt. (Cr)}\\ \text{Carriage Inward}& 2,200& \\ \text{Returns}& 3,000& 2,200\\ \text{Stationery}& 1,200& \\ \text{Wages}& 12,500& \\ \text{Bills Receivables and Bills}& 45,000& 32,000\\ \text{Payables}& & \\ \text{Discount}& 900& 400\\ \text{Salaries}& 12,000& \\ \text{Rent and Taxes}& 18,000& \\ \text{Insurance Premium}& 2,400& \\ \text{Postage}& 300& \\ \text{Sundry Expenses}& 1,100& \\ \text{Commission}& & 3,200\\ \text{Debtors and Creditors}& 95,000& 40,000\\ \text{Building}& 1,20,000& \\ \text{Plant and Machinery}& 80,000& \\ \text{Investments}& 1,00,000& \\ \text{Furniture and Fixture}& 26,000& \\ \text{Bad Debts}& 2,000& \\ \text{Bad Debts Provision}& & 4,600\\ \text{Loan}& & 35,000\\ \text{Legal Expenses}& 200& \\ \text{Audit Fee}& 1,800& \\ \text{Cash in Hand}& 13,500& \\ \text{Cash at Bank}& 23,000& \\ & \overline{\underset{–}{8,91,200}}& \overline{\underset{–}{8,91,200}}\end{array}$

Prepare final accounts for the year ended December 31, 2005, with following adjustment

(a) Stock on December 31, 2005 was Rs 42, 500.

(b) A Provision is to be made for bad debts at 5% on debtors.

(c) Rent outstanding was Rs 1, 600.

(d) Wages outstanding were Rs 1, 200.

(e) Interest on capital to be allowed on capital @ 4% per annum and interest on drawings to be on charged @6% per annum.

(f) Dinker and Ravinder are entitled to a Salary of Rs 2, 000 per annum.

(g) Ravinder is entitled to a commission Rs 1, 500.

(h) Depreciation is to be charged on Building @ 4%, Plant and Machinery, 6%, and furniture and fixture, 5%.

(i) Outstanding interest on loan amounted to Rs 350.

Q.

Radha, Sheela and Meena were in partnership sharing profits and losses in the proportion of 3 : 2 : 1. On April 1, 2007, Sheela retires from the firm. On that date, their Balance Sheet was as follows

$\begin{array}{ccccc}\text{Capital and Liabilities}& & \text{Amt. (Rs)}& \text{Assets}& \text{Amt. (Rs)}\\ \text{Trade Creditors}& & 3,000& \text{Cash in Hand}& 1,500\\ \text{Bills payable}& & 4,500& \text{Cash at Bank}& 7,500\\ \text{Expenses Owing}& & 4,500& \text{Debtors}& 15,000\\ \text{General Reserve}& & 13,500& \text{Stock}& 12,000\\ \text{Capitals}& & & \text{Factory Premises}& 22,500\\ \text{Radha}& 15,000& & \text{Machinery}& 8,000\\ \text{Sheela}& 15,000& & \text{Loose Tools}& 4,000\\ \text{Meena}& \underset{–}{15,000}& 45,000& & \\ & & \underset{–}{\underset{–}{\overline{70,500}}}& & \underset{–}{\underset{–}{\overline{70,500}}}\end{array}$

The terms were

(a) Goodwill of the Firm was valued at Rs.13, 500.

(b) Expenses owing to be brought down to Rs.3, 750.

(c) Machinery and Loose Tools are to be valued at 10 % less than their book value.

(d) Factory premises are to be revalued at Rs.24300.

Prepare

1. Revaluation account

2. Partners capital accounts

3. Balance sheet of the firm after retirement of Sheela

Q.

Prepare a Common Size Statement of Profit & Loss from the following and interpret the same :

STATEMENT OF PROFIT & LOSS

$\begin{array}{cccc}& \text{Note}& 31\text{st}& 31\text{st}\\ & \text{No}& \text{March}& \text{March}\\ & & 2018& 2017\\ & & \text{Rs}& \text{Rs}\\ \text{Revenue from Operations}& & 25,00,000& 20,00,000\\ \text{Other Income}& & 1,00,000& 1,00,000\\ \text{Cost of Materials Consumed}& & 17,00,000& 14,00,000\\ \text{Finance Costs}& & 2,00,000& 1,60,000\\ \text{Other Expenses}& & 1,00,000& 1,40,000\end{array}$

Q.

Kajol and Sunny were partners sharing profits and losses in the ratio of 3:2. The following Balances were extracted from the books of account for the year ended March 31, 2006.

$\begin{array}{ccc}\text{Account Name}& \text{Amt. (Dr)}& \text{Amt. (Cr)}\\ \text{Capital}& & \\ \text{Kajol}& & 115,000\\ \text{Sunny}& & 91,000\\ \text{Current Accounts (on 1-04-2005)}& & \\ \text{Kajol}& & 4,500\\ \text{Sunny}& 3,200& \\ \text{Drawings}& & \\ \text{Kajol}& 6,000& \\ \text{Sunny}& 3,000& \\ \text{Opening Stock}& 22,700& \\ \text{Purchase and Sales}& 1,65,000& 2,35,800\\ \text{Freight Inward}& 1,200& \\ \text{Returns}& 2,000& 3,200\end{array}$

$\begin{array}{ccc}\text{Account Name}& \text{Amt. (Dr)}& \text{Amt. (Cr)}\\ \text{Printing and Stationery}& 900& \\ \text{Wages}& 5,500& \\ \text{Bills Receivables and Bills}& 25,000& 21,000\\ \text{Payables}& & \\ \text{Discount}& 400& 800\\ \text{Salaries}& 6,000& \\ \text{Rent}& 7,200& \\ \text{Insurance Premium}& 2,000& \\ \text{Travelling Expenses}& 700& \\ \text{Soundry Expenses}& 1,100& \\ \text{Commission}& & 1,600\\ \text{Debtors and Creditors}& 74,000& 78,000\\ \text{Building}& 85,000& \\ \text{Plant and Machinery}& 70,000& \\ \text{Motor Car}& 60,000& \\ \text{Furniture and Fixtures}& 15,000& \\ \text{Bad Debts}& 1,500& \\ \text{Provision for Doubtful Debts}& & 2,200\\ \text{Loan}& & 25,000\\ \text{Legal Expenses}& 300& \\ \text{Audit Fee}& 900& \\ \text{Cash in Hand}& 7,500& \\ \text{Cash at Bank}& 12,000& \\ & \overline{\underset{–}{5,78,100}}& \overline{\underset{–}{5,78,100}}\end{array}$

Prepare final accounts for the year ended March 31, 2006, with following adjustments

(a) Stock on March 31, 2006 was Rs 37, 500.

(b) Bad debts Rs 3, 000; Provision for bad debts is to be made at 5% on debtors.

(c) Rent prepaid were Rs 1, 200.

(d) Wages outstanding were Rs 2, 200.

(e) Interest on capital to be allowed on capital at 6% per annum and interest on drawings to be charged @ 5% per annum.

(f) Kajol is entitled to a Salary of Rs 1, 500 per annum.

(g) Prepaid insurance was Rs 500.

(h) Depreciation was charged on Building, @ 4%; Plant and Machinery @5% Motor car, @10% and Furnniture and Fixture, @ 5%.

(i) Goods worth Rs 7, 000 were destroyed by fire on January 20, 2005. Insurance company agreed to pay Rs 5, 000 in full settlement of the case.

Q.

A financial document that indicates the success or failure of a business trading over a period of time is called?

1. An income statement

2. A cash flow statement

3. A retained earnings statement

4. A bank statement

Q.

State the difference between dissolution of Partnership and Dissolution of Partnership firm.

Q.

Following is the Balance Sheet of Prateek, Rockey and Kushal as on March 31, 2007.

$\begin{array}{ccccccc}& & & & & & \\ & & & & \text{Balance Sheet}& & \\ \text{Dr}& & & & \text{as on March 31, 2007}& & \text{Cr}\end{array}\begin{array}{cccccc}\text{Capital and Liabilities}& & \text{Amt.(Rs)}& \text{Assets}& & \text{Amt.(Rs)}\\ \text{Sundry Creditors}& & \text{16, 000}& \text{Bills Receivable}& & \text{16, 000}\\ \text{General Reserve}& & \text{16, 000}& \text{Furniture}& & \text{22, 600}\\ \text{Capital Accounts}& & & \text{Stock}& & \text{20, 400}\\ \text{Prateek}& \text{30, 000}& & \text{Sundry Debtors}& & \text{22, 000}\\ \text{Rockey}& \text{20, 000}& & \text{Cash at Bank}& & \text{18, 000}\\ \text{Kushal}& \underset{–}{20,000}& \text{70, 000}& \text{Cash in Hand}& & \text{3, 000}\\ & & \overline{\underset{–}{\underset{–}{1,02,000}}}& & & \overline{\underset{–}{\underset{–}{1,02,000}}}\end{array}$

Rockey died on June 30, 2007. Under the terms of the partnership deed, the executors of a deceased partner were entitled to

(a) Amount standing to the credit of the Partner's capital account.

(b) Interest on capital at 5% per annum.

(c) Share of goodwill on the basis of twice the average of the past three years' profit.

(d) Share of profit from the closing date of the last financial year to the date of death on the basis of last year's profit

Profits for the year ending on March 31, 2005, March 31, 2006 and March 31, 2007 were Rs.12, 000, Rs. 16, 000 and Rs.14, 000 respectively. profits were shared in the ratio of capitals.

Pass the necessary journal entries and draw up Rockey's capital account to be rendered to his executor.

Q.

From the following Statement of Profit and Loss of Sun Ltd., for the years ended 31st March, 2015 and 2016, prepare a Common Size Statement :

$\begin{array}{cccc}\text{Particulars}& \text{Note}& \text{2015-16}& \text{2014-15}\\ & \text{No.}& & \\ \text{Revenue from Operations}& & 30,00,000& 20,00,000\\ \text{Expenses}& & 12,00,000& 10,00,000\\ \text{Other Income}& & 3,60,000& 4,00,000\\ \text{Income Tax}& & 50\%& 40\%\end{array}$

Q. The common size income statement considers the revenue from operations as base. The percentage allocation for the base is

1. 75
2. 50
3. 10
4. 100

Q.

Can a company purchase its own debentures, in the open market? Explain.

Q.

At what figures the value of assets and liabilities appear in the books of the firm after revaluation has been due. Show with the help of an imaginary balance sheet.

Q.

These statements are also known as component percentage or 100 per cent statements.

1. Comparative statements

2. Common size statements

3. Cash flow statements

4. None of these

Q.

Fill in the missing figures :
$\begin{array}{cccccc}\text{Date}& \text{Particulars}& & \text{L.F.}& \text{Debit}& \text{Credit}\\ & & & & \text{(Rs)}& \text{(Rs)}\\ & \text{Sundry Assets A/c}& \text{Dr.}& & ............& \\ & \text{To Vendor A/c}& & & & ...........\\ & \underset{–}{\text{(Being business is taken over by X Ltd)}}& & & & \\ & \text{Vendor A/c}& \text{Dr.}& & ............& \\ & \text{To Equity Share Capital A/c}& & & & ............\\ & \text{To Securities Premium Reserve A/c}& & & & ............\\ & \text{(Being purhase consideration on Rs 2, 00, 000 is settled by}& & & & \\ & \text{issuing equity shares of Rs 10 each at a premium of}25\%)& & & & \end{array}$

Q. Common-size income statement will report the revenue and expense amounts as percentages of revenue from .

1. total income
2. interest
3. other income
4. operations

Q.

Formula for common size analysis is ___

1. $\frac{\text{\% of individual item}}{\text{Amount of base}}\times 100$

2. $\frac{\text{Amount of base item}}{\text{Amount of individual item}}\times 100$

3. None of these

4. $\frac{\text{Amount of individual item}}{\text{Amount of base}}\times 100$

Q. Which of the following statements is correct?

[0.88 marks]

1. Solvency ratio indicates a company’s cash availability to pay off its liabilities at a given point of time.
2. Profitability ratio indicates the average profit earned by a business entity in the past five years.
3. Activity ratio monitors the profit-earning capacity of a business entity.
4. The ideal quick ratio is 1 : 1.

Q.

Refer the data in the table below:

$\begin{array}{cc}\text{Particulars}& 2005-06\\ \text{Reveue from Operations}& 4,00,00,000\\ \text{Other Income}& 50,00,000\\ \text{Purchase of stock in trade}& 40,00,000\\ \text{Employee Benefit Expenses}& 10,00,000\\ \text{Depreciation and Amortization}& 65,00,000\\ \text{Profit before tax}& 2,35,00,000\end{array}$

Apply common size analysis for Employee Benefit Expenses

1. 2.50%

2. 10%

3. 20%

4. None of these

Q. Common-size Income Statement is that statement in which amount of Revenue from Operations is taken as 100 and all other amounts are expressed as percentage thereof.

1. True
2. False

Q. 'Manufacturing Account' is prepared by _________.

1. Cement Industry
2. Pharma Industry
3. Iron Industry
4. All of the above

Q. Which of the following statements are true?
a. Common size balance sheet shows relative value of the various items.
b. In the common size income statement, each product is represented as a percentage of the net sales figure.
c. Common size income statements represents the various element as a percentage of the gross profit.

1. All of the above
2. Both (a) and (b)
3. Both (a) and (c)
4. Both (b) and (c)

Q.

What is percentage error?

Q. Give the formula to calculate the annual depreciation as per Straight Line Method.

Q. Comparative Statement of profit and loss is the horizontal analysis of Statement of profit and loss which shows :

1. the operating results for the compared accounting periods.
2. changes in data in terms of absolute amount.
3. percentage from one period to another.
4. all of the above

Q.

Refer the data in the table below:

$\begin{array}{cc}\text{Particulars}& 2005-06\\ \text{Reveue from Operations}& 4,00,00,000\\ \text{Other Income}& 50,00,000\\ \text{Purchase of stock in trade}& 40,00,000\\ \text{Employee Benefit Expenses}& 10,00,000\\ \text{Depreciation and Amortization}& 65,00,000\\ \text{Profit before tax}& 2,35,00,000\end{array}$

Apply common size analysis to Profit before tax.

1. 58.75%

2. None of these

3. 20.95%

4. 12.50%

Q. A company purchased plant for 50, 000. The useful life of the plant is 10 years and the residual value is 5, 000. The management wants to depreciate it by straight line method. Rate of depreciation will be:

1. 8%
2. 9%
3. 10%
4. None of the above