Financial Statement Analysis text book Solutions

Class 12 Samacheer Kalvi students, here are the text book solutions for Chapter 8, Financial Statement Analysis. If you have any doubts, please reach out to us in the comments section.

Multiple choice questions

Choose the correct answer:

1. Which of the following statements is not true?
a) Notes and schedules also form part of financial statements.	b) The tools of financial statement analysis include common-size statement
c) Trend analysis refers to the study of movement of figures for one year	d) The common–size statements show the relationship of various items with some common base, expressed as percentage of the common base
2. Balance sheet provides information about the financial position of a business concern
a) Over a period of time	b) As on a particular date
c) For a period of time	d) For the accounting period
3. Which of the following tools of financial statement analysis is suitable when data relating to several years are to be analysed?
a) Cash flow statement	b) Common size statement
c) Comparative statement	d) Trend analysis
4. The financial statements do not exhibit
a) Non-monetary data	b) Past data
c) Short term data	d) Long term data
5. Which of the following is not a tool of financial statement analysis?
a) Trend analysis	b) Common size statement
c) Comparative statement	d) Standard costing
6. The term ‘fund’ refers to
a) Current liabilities	b) Working capital
c) Fixed assets	d) Non-current assets
7. Which of the following statements is not true?
a) All the limitations of financial statements are applicable to financial statement analysis also.	b) Financial statement analysis is only the means and not an end.
c) Expert knowledge is not required in analysing the financial statements.	d) Interpretation of the analysed data involves personal judgement.
8. A limited company’s sales has increased from Rs. 1,25,000 to Rs. 1,50,000. How does this appear in comparative income statement?
a) + 20 %	b) + 120 %
c) – 120 %	d) – 20 %
9. In a common-size balance sheet, if the percentage of non-current assets is 75, what would be the percentage of current assets?
a) 175	b) 125
c) 25	d) 100
10. Expenses for a business for the first year were Rs. 80,000. In the second year, it was increased to Rs. 88,000. What is the trend percentage in the second year?
a) 10 %	b) 110 %
c) 90 %	d) 11%

Very short answer questions

$\text{1. What are financial statements?}\\$
$\text{Financial statements are the statements prepared by the business } \\$
$\text{concerns at the end of the accounting period to ascertain } \\$
$\text{the operating results and the financial position.} \\$

$\text{2. List the tools of financial statement analysis.}\\$
$\text{The commonly used tools of financial statement analysis are }\\$
$\text{Comparative statement Common-size statements, Trend analysis,}\\$
$\text{Funds flow analysis, and Cash flow analysis.}\\$

$\text{3. What is working capital?}\\$
$\text{Working capital refers to the excess of current assets over current liabilities.} \\$

$\text{4. When is trend analysis preferred to other tools?}\\$
$\text{When data for more than two years are to be analysed, it may be difficult }\\$
$\text{ to use comparative statement. For this purpose, trend analysis may be used.}\\$

Short answer questions

$\text{1. 'Financial statements are prepared based on the past }\\$
$\text{data'. Explain how this is a limitation.}\\$
$\text{Financial statements are prepared based on past data, which}\\$
$\text{is a limitation because past figures may not reflect current}\\$
$\text{or future conditions. The information recorded relates to} \\$
$\text{historical costs and past performance,and therefore may not } \\$
$\text{ show the present market value of assets, changes in economic } \\$
$\text{ conditions, inflation, or future trends. As a result, decisions } \\$
$\text{based solely on historical data may not be fully reliable}\\$
$\text{for planning, forecasting, or evaluating the current financial}\\$
$\text{ position of a business.}\\$

$\text{2. Write a short note on cash flow analysis.}\\$
$\text{Cash flow analysis is concerned with preparation of cash flow } \\$
$\text{ statement which shows the inflow and outflow of cash and cash } \\$
$\text{equivalents in a given period of time. Cash includes cash in } \\$
$\text{ hand and demand deposits with banks. Cash equivalents denote short} \\$
$\text{term investments which can be realised easily within a short } \\$
$\text{period of time, without much loss in value. Cash flow analysis } \\$
$\text{ helps in assessing the liquidity and solvency of a business concern.}\\$

$\text{3. Briefly explain any three limitations of financial statements.} \\$
$\text{Following are the limitations of financial statement analysis:} \\$
$\text{1. All the limitations of financial statements such as ignoring } \\$
$\text{non-monetary information, ignoring price level changes,} \\$
$\text{etc., are applicable to financial statement analysis also.} \\$
$\text{3. Expert knowledge is required in analysing the financial statements.} \\$
$\text{4. Interpretation of the analysed data involves personal } \\$
$\text{judgement as different experts may give different views.}\\$

$\text{4. Explain the steps involved in preparing comparative statement.} \\$
$\text{A comparative statement has five columns. Following are the steps } \\$
$\text{ to be followed in preparation of the comparative statement:} \\$
$\text{(i) Column 1: In this column, particulars of items of income } \\$
$\text{statement or balance sheet are written.} \\$
$\text{(ii) Column 2: Enter absolute amount of year 1.} \\$
$\text{(iii) Column 3: Enter absolute amount of year 2.} \\$
$\text{(iv) Column 4: Show the difference in amounts between year 1 } \\$
$\text{and year 2. If there is an increase in year 2, put plus} \\$
$\text{sign and if there is decrease put minus sign.} \\$
$\text{(v) Column 5: Show percentage increase or decrease of the difference } \\$
$\text{amount shown in column 4 by dividing the amount shown in column 4 } \\$
$\text{(absolute amount of increase or decrease) by column 2 (year 1 amount). That is,} \\$
$\text{Percentage increase or decrease =}\dfrac{\text{Absolute amount of increase or decrease}}{\text{Year 1 amount}\times 100}\\$

$\text{5. Explain the procedure for preparing common-size statement.} \\$
$\text{Following are the steps to be followed in preparation of common-size statement: }\\$
$\text{(i) Column 1: In this column, particulars of items of income}\\$
$\text{statement or balance sheet are written.}\\$
$\text{(ii) Column 2: Enter absolute amount. } \\$
$\text{(iii) Column 3: Choose a common base as 100. For example, }\\$
$\text{revenue from operations can be taken as the base for income }\\$
$\text{statement and total of balance sheet can be taken as the base }\\$
$\text{for balance sheet. Work out the percentage for all the items of }\\$
$\text{column 2 in terms of the common base and enter them in column 3.}\\$

Exercises

Comparative statement analysis

$\text{1. From the following particulars, prepare comparative } \\$
$\text{income statement of Arul Ltd.} \\$

Particulars	2015-16 (Rs.)	2016-17 (Rs.)
Revenue from operations	50,000	60,000
Other income	10,000	30,000
Expenses	40,000	50,000

Comparative Income Statement Analysis of Arul Ltd. for the year ended 31.3.2016 to 31.3. 2017

Particulars	2015-16 (Rs.)	2016-17 (Rs.)	Absolute Increase or Decrease	Percentage Increase or Decrease
Revenue from operations	50,000	60,000	+10000	+20
Add: Other income	10,000	30,000	-20,000	-200
Total Revenue	60000	90000	+30000	+50
Expenses	40,000	50,000	-10,000	-25
Profit Before Tax	20,000	40,000	+20000	+25

$\text{2. From the following particulars, prepare comparative }\\$
$\text{income statement of Barani Ltd.}\\$

Particulars	2016-17 (Rs.)	2017-18 (Rs.)
Revenue from operations	30,000	45,000
Other income	4,000	6,000
Expenses	10,000	15,000
Income tax	30%	30%

Comparative Income Statement Analysis of Barani Ltd. for the year ended 31.3.2017 to 31.32018

Particulars	2016-17 (Rs.)	2017-18 (Rs.)	Absolute Increase or Decrease	Percentage Increase or Decrease
Revenue from operations	30,000	45,000	+15000	+50
Add: Other income	4,000	6,000	+2000	+50
Total Revenue	34000	51000	+17000	+50
Less:Expenses	10,000	15,000	+5000	+50
Profit Before Tax	24,000	36,000	+12000	+50
Less: Income Tax (30%)	7,200	10,800	+3600	+50
Profit After Tax	16,800	25,200	+8400	+50

$\text{3. From the following particulars, prepare comparative }\\$
$\text{income statement of Daniel Ltd.}\\$

Particulars	2015-16 (Rs.)	2016-17 (Rs.)
Revenue from operations	40,000	50,000
Operating expenses	25,000	27,500
Income tax (% of the profit before tax)	30	30

Comparative Income Statement Analysis of Daniel Ltd. for the year ended 31.3.2016 to 31.32017

Particulars	2015-16 (Rs.)	2016-17 (Rs.)	Absolute Increase or Decrease	Percentage Increase or Decrease
Revenue from operations	40,000	50,000	+10000	+25
Less:Operating expenses	25,000	27,500	+2500	+10
Profit Before Tax	15000	22500	+7500	+50
Less: Income Tax 30%	4,500	6,750	+2250	+50
Profit After Tax	10,500	15,750	+5250	+50

$\text{4. From the following particulars, prepare comparative statement }\\$
$\text{of financial position of Muthu Ltd.} \\$

Particulars	31st March, 2017	31st March, 2018
I EQUITY AND LIABILITIES
Shareholders’ Fund	4,00,000	4,40,000
Non-current liabilities	1,50,000	1,65,000
Current liabilities	75,000	82,500
Total	6,25,000	6,87,500
II ASSETS
Non-current assets	5,00,000	6,00,000
Current assets	1,25,000	87,500
Total	6,25,000	6,87,500

Comparative Balance Sheet of Muthu Ltd. as on 31st March 2017 to 31st March 2018

Particulars	31st March, 2017	31st March, 2018	Absolute Asset Increase or Decrease	Percentage Increase or Decrease
I EQUITY AND LIABILITIES
Shareholders’ Fund	4,00,000	4,40,000	40,000	10
Non-current liabilities	1,50,000	1,65,000	15,000	10
Current liabilities	75,000	82,500	7,500	10
Total	6,25,000	6,87,500	62,500	10
II ASSETS
Non-current assets	5,00,000	6,00,000	1,00,000	20
Current assets	1,25,000	87,500	-37500	30
Total	6,25,000	6,87,500	62,500	10

$\text{5. From the following particulars, prepare comparative }\\$
$\text{ statement of financial position of Kala Ltd.}\\$

Particulars	31st March, 2017	31st March, 2018
I EQUITY AND LIABILITIES
1. Shareholders’ Fund
a) Share capital	3,00,000	3,60,000
b) Reserves and surplus	50,000	50,000
2. Non-current liabilities
Long-term borrowings	50,000	40,000
3. Current liabilities
Trade payables	20,000	12,000
Total	4,20,000	4,62,000
II ASSETS
1. Non-current assets
a) Fixed assets	2,50,000	2,90,000
b) Non - current investments	50,000	40,000
2. Current assets
Inventories	80,000	1,00,000
Cash and cash equivalents	40,000	32,000
Total	4,20,000	4,62,000

Comparative Balance Sheet of Kala Ltd. as on 31st March 2017 to 31st March 2018

Particulars	31st March, 2017	31st March, 2018	Absolute Asset Increase or Decrease	Percentage Increase or Decrease
I EQUITY AND LIABILITIES
1. Shareholders’ Fund
a) Share capital	3,00,000	3,60,000	60,000	20
b) Reserves and surplus	50,000	50,000	-	-
2. Non-current liabilities
Long-term borrowings	50,000	40,000	10,000	20
3. Current liabilities
Trade payables	20,000	12,000	-8000	40
Total	4,20,000	4,62,000	42,000	10
II ASSETS
1. Non-current assets
a) Fixed assets	2,50,000	2,90,000	40000	16
b) Non - current investments	50,000	40,000	-10000	20
2. Current assets
Inventories	80,000	1,00,000	20000	25
Cash and cash equivalents	40,000	32,000	-8000	20
Total	4,20,000	4,62,000	42000	10

Common-size statement

$\text{6. Prepare common-size income statement for the following }\\$
$\text{particulars of Raja Ltd. for the year ended 31st March, 2017}\\$

Particulars	2016-17
Revenue from operations	4,50,000
Other income	67,500
Expenses	1,35,000

Common Size Income Statement of Raja Ltd. for the year ended 31st March 2017

Particulars	Absolute Amount	Percentage of Revenue from Operations
Revenue from operations	4,50,000	100
Add: Other income	67,500	15
Total Revenue	517500	115
Less: Expenses	1,35,000	30
Profit Before Tax	3,82,500	85

$\text{7. From the following particulars of Maria Ltd. and Kala Ltd. prepare a }\\$
$\text{ common-size income statement for the year ended 31st March, 2019.}\\$

Particulars	Maria Ltd (Rs.)	Kala Ltd (Rs.)
Revenue from operations	1,00,000	2,00,000
Other income	10,000	30,000
Expenses	70,000	1,20,000

Common Size Income Statement of Maria Ltd. and Kala Ltd. for the year ended 31st March 2019

Particulars	Maria Ltd (Rs.)	Percentage of Revenue from Operations	Kala Ltd (Rs.)	Percentage of Revenue from Operations
Revenue from operations	1,00,000	100	2,00,000	100
Add: Other income	10,000	10	30,000	15
Total Revenue	110000	110	230000	115
Less: Expenses	70,000	70	1,20,000	60
Profit Before Tax	40,000	40	1,10,000	55

$\text{8. Prepare common-size income statement for the }\\$
$\text{ following particulars of Sam Ltd.}\\$

Particulars	2015-16 (Rs.)	2016-17 (Rs.)
Revenue from operations	4,00,000	5,00,000
Other income	80,000	50,000
Expenses	2,40,000	2,50,000
Income tax	30%	30%

Common Size Income Statement of Sam Ltd.

Particulars	2015-16 (Rs.)	Percentage of Revenue from Operations	2016-17 (Rs.)	Percentage of Revenue from Operations
Revenue from operations	4,00,000	100	5,00,000	100
Add: Other income	80,000	20	50,000	10
Total Revenue	480000	120	550000	110
Less: Expenses	2,40,000	60	2,50,000	50
Profit Before Tax	2,40,000	60	3,00,000	50
Less: Income Tax @30%	72,000	18	90,000	18
Profit After Tax	1,68,000	42	2,10,000	42

$\text{9. Prepare Common-size balance sheet of Meena Ltd. as on 31st March, 2018.}\\$

Particulars	31st March 2018 (Rs.)
I EQUITY AND LIABILITIES
Shareholders’ funds	2,00,000
Non-current liabilities	1,60,000
Current liabilities	40,000
Total	4,00,000
II ASSETS
Non-current assets	3,00,000
Current assets	1,00,000
Total	4,00,000

Common Size Income Statement of Meena Ltd. for the year ended 31st March 2018

Particulars	Absolute Amount	Percentage of Total Assets
I EQUITY AND LIABILITIES
Shareholders’ funds	2,00,000	50
Non-current liabilities	1,60,000	40
Current liabilities	40,000	10
Total	4,00,000	100
II ASSETS
Non-current assets	3,00,000	75
Current assets	1,00,000	25
Total	4,00,000	100

$\text{10. Prepare common-size statement of financial position }\\$
$\text{for the following particulars of Rani Ltd.}\\$

Particulars	31st March, 2016 (Rs.)	31st March, 2017 (Rs.)
I EQUITY AND LIABILITIES
Shareholders’ Fund	5,40,000	6,00,000
Non-current liabilities	2,70,000	2,50,000
Current liabilities	90,000	1,50,000
Total	9,00,000	10,00,000
II ASSETS
Non-current assets	7,20,000	8,00,000
Current assets	1,80,000	2,00,000
Total	9,00,000	10,00,000

Common Size Income Statement of Rani Ltd. as on 31st March 2016 to 31st March 2017

	31st March 2016		31st March 2017
Particulars	Absolute Amount	Percentage of Total Assets	Absolute Amount	Percentage of Total Assets
I EQUITY AND LIABILITIES
Shareholders’ Fund	5,40,000	60	6,00,000	60
Non-current liabilities	2,70,000	30	2,50,000	25
Current liabilities	90,000	10	1,50,000	15
Total	9,00,000	100	10,00,000	100
II ASSETS
Non-current assets	7,20,000	80	8,00,000	80
Current assets	1,80,000	20	2,00,000	20
Total	9,00,000	100	10,00,000	100

$\text{11. Prepare common-size statement of financial position }\\$
$\text{for the following particulars of Yasmin Ltd. and Sakthi Ltd.}\\$

Particulars	Yasmin Ltd. (Rs.)	Sakthi Ltd. (Rs.)
I EQUITY AND LIABILITIES
1. Shareholders’ Fund
a) Share capital	2,00,000	3,00,000
b) Reserves and surplus	50,000	60,000
2. Non-current liabilities
Long-term borrowings	1,50,000	1,80,000
3. Current liabilities
Trade payables	1,00,000	60,000
Total	5,00,000	6,00,000
II ASSETS
1. Non-current assets
a) Fixed assets	2,00,000	3,00,000
b) Non - current investments	50,000	1,20,000
2. Current assets
Inventories	2,00,000	90,000
Cash and cash equivalents	50,000	90,000
Total	5,00,000	6,00,000

Common Size Balance Sheet of Yasmin Ltd. And Sakthi Ltd.

	Yasmin Ltd		Sakthi Ltd.
Particulars	Absolute Amount	Percentage of Total Assets	Absolute Amount	Percentage of Total Assets
I EQUITY AND LIABILITIES
1. Shareholders’ Fund
a) Share capital	2,00,000	40	3,00,000	50
b) Reserves and surplus	50,000	10	60,000	10
2. Non-current liabilities
Long-term borrowings	1,50,000	30	1,80,000	30
3. Current liabilities
Trade payables	1,00,000	20	60,000	10
Total	5,00,000	100	6,00,000	100
II ASSETS
1. Non-current assets
a) Fixed assets	2,00,000	40	3,00,000	50
b) Non - current investments	50,000	10	1,20,000	20
2. Current assets
Inventories	2,00,000	40	90,000	15
Cash and cash equivalents	50,000	10	90,000	15
Total	5,00,000	100	6,00,000	100

Trend analysis

$\text{12. From the following particulars, calculate the trend percentages of Kala Ltd.}\\$

Particulars	Rs. in thousands
	2015-16	2016-17	2017-18
Revenue from operations	400	500	600
Other income	100	150	200
Expenses	200	290	350

Trend Percentage of Kala Ltd. (in thousands)

Particulars	2015-16	2016-17	2017-18	2015-16	2016-17	2017-18
Revenue from operations	400	500	600	100	125	150
Add: Other income	100	150	200	100	150	200
Total Revenue	500	650	800	100	130	160
Less: Expenses	200	290	350	100	145	175
Profit	300	360	450	100	120	150

$\text{13. From the following particulars, calculate the Trend }\\$
$\text{percentages of Kavitha Ltd.}\\$

Particulars	Rs. in thousands
	2015-16	2016-17	2017-18
Revenue from operations	100	125	150
Other income	20	25	30
Expenses	100	120	80
Income tax	30%	30%	30%

Trend Percentage of Kavitha Ltd. (in thousands)

Particulars	2015-16	2016-17	2017-18	2015-16	2016-17	2017-18
Revenue from operations	100	125	150	100	125	150
Add: Other income	20	25	30	100	125	150
Total Revenue	120	150	180	100	120	150
Less: Expenses	100	120	80	100	120	80
Profit before tax	20	30	100	100	150	500
Less: Income tax @30%	6	9	30	100	150	500
Profit after tax	14	21	70	100	150	500

$\text{14. From the following particulars, calculate the trend }\\$
$\text{ percentages of Kumar Ltd.}\\$

Particulars	Rs. in thousands
	2015-16	2016-17	2017-18
Revenue from operations	300	270	150
Other income	50	80	60
Expenses	250	200	125
Income tax %	40	40	40

Trend Percentage of Kumar Ltd. (in thousands)

Particulars	2015-16	2016-17	2017-18	2015-16	2016-17	2017-18
Revenue from operations	300	270	150	100	90	50
Add: Other income	50	80	60	100	160	120
Total Revenue	350	350	210	100	100	60
Less: Expenses	250	200	125	100	80	50
Profit before tax	100	150	85	100	150	85
Less: Income tax @40%	40	60	34	100	150	85
Profit after tax	60	90	51	100	150	85

$\text{15. From the following particulars, calculate the trend }\\$
$\text{percentages of Anu Ltd. }\\$

Particulars	Rs. in thousands
	Year 1	Year 2	Year 3
I EQUITY AND LIABILITIES
Shareholders’ Fund	500	550	600
Non-current liabilities	200	250	240
Current liabilities	100	80	120
Total	800	880	960
II ASSETS
Non-current assets	600	720	780
Current assets	200	160	180
Total	800	880	960

Trend Percentage of Anu Ltd. (in thousands)

Particulars	Year 1	Year 2	Year 3	Year 1	Year 2	Year 3
I EQUITY AND LIABILITIES
Shareholders’ Fund	500	550	600	100	110	120
Non-current liabilities	200	250	240	100	125	120
Current liabilities	100	80	120	100	80	120
Total	800	880	960	100	110	120
II ASSETS
Non-current assets	600	720	780	100	120	130
Current assets	200	160	180	100	80	90
Total	800	880	960	100	110	120

$\text{16. From the following particulars, calculate the trend }\\$
$\text{ percentages of Babu Ltd.}\\$

Particulars	Rs. in thousands
	Year 1	Year 2	Year 3
I EQUITY AND LIABILITIES
1. Shareholders’ Fund
a) Share capital	100	127	106
b) Reserves and surplus	30	30	45
2. Non-current liabilities
Long-term borrowings	70	77	84
3. Current liabilities
Trade payables	20	30	40
Total	220	264	275
II ASSETS
1. Non-current assets
a) Fixed assets	100	118	103
b) Non current investments	40	50	60
2. Current assets
Inventories	60	66	72
Cash and cash equivalents	20	30	40
Total	220	264	275

Trend Percentage of Babu Ltd. (in thousands)

Particulars	Year 1	Year 2	Year 3	Year 1	Year 2	Year 3
I EQUITY AND LIABILITIES
1. Shareholders’ Fund
a) Share capital	100	127	106	100	127	106
b) Reserves and surplus	30	30	45	100	100	150
2. Non-current liabilities
Long-term borrowings	70	77	84	100	110	120
3. Current liabilities
Trade payables	20	30	40	100	150	200
Total	220	264	275	100	120	125
II ASSETS
1. Non-current assets
a) Fixed assets	100	118	103	100	118	103
b) Non current investments	40	50	60	100	125	150
2. Current assets
Inventories	60	66	72	100	110	120
Cash and cash equivalents	20	30	40	100	150	200
Total	220	264	275	100	120	125

Financial Statement Analysis Text Book Solutions

Multiple choice questions

Choose the correct answer:

Very short answer questions

Short answer questions

Exercises

Comparative statement analysis

Common-size statement

Trend analysis

Related Posts:

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Multiple choice questions

Choose the correct answer:

Very short answer questions

Short answer questions

Exercises

Comparative statement analysis

Common-size statement

Trend analysis

Related Posts:

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