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Financial Accounting & Analysis
April 2024 Examination
Q1. Prachi Industries purchased a land worth 2 crores, office fixtures and furniture worth Rs 50 lakhs. Five years back the company has purchased an investment property for Rs 5 crores out of which today they disposed of 20% of the property, at a realizable value of Rs 3 crores. As a consultant to the company discuss as per the needs of corporate reporting the nature of these items, how the above items needs to be presented and disclosed in the corporate financial statement. (10 Marks)
Ans 1.
Introduction
The realm of financial accounting and analysis necessitates a meticulous approach to the classification, presentation, and disclosure of various assets. In the case of Prachi Industries, the company’s recent financial activities—including the purchase of land, office fixtures, furniture, and the disposal of a portion of their investment property—highlight the importance of these principles. This discussion focuses on the treatment of these items in corporate financial statements. The nature of each asset—whether it’s a tangible fixed asset like land and office fixtures or an investment property—determines its accounting treatment in terms of recognition,
Q2. Ms. Shravani , our accounts manager, is responsible for overseeing financial activities at Mogra Enterprises. She ensures accurate bookkeeping and compliance with accounting assumptions. Her junior executive is confused about how the various accounting assumptions plays a vital role in accounting. Further she wants Ms Shravani to help her in understanding the difference between the accounting period assumption and separate entity assumption, Discuss how (you being) Ms. Shravani would like to explain all these in simple terms. (10 Marks)
Ans 2.
Introduction
In the dynamic field of financial accounting, the foundational principles, known as accounting assumptions, play a crucial role in guiding and standardizing the accounting practices. At Mogra Enterprises, Ms. Shravani, the accounts manager, stands at the forefront of implementing these assumptions to ensure the integrity and accuracy of financial reporting. Among these, the accounting period assumption and the separate entity assumption are particularly significant. These assumptions not only shape the framework of financial recording and analysis but also influence decision-making processes within the organization.
Q3. Perform the common Size analysis for the year (5*2—-10 Marks)
a. 2021
b. 2022
Statements of Income
2021 2022
Operating revenues 9,56,690 9,12,813
Operating expenses
Personnel 1,13,433 1,32,080
Fuel 1,28,076 1,00,058
Purchased power 1,54,910 1,34,488
Depreciation 1,44,622 1,56,469
Maintenance 92,717 86,261
Taxes other than income taxes 63,266 63,220
Purchased services 38,392 35,948
Other 1,01,513 1,04,850
8,36,929 8,13,374
Operating income 1,19,761 99,439
Other expenses (income):
Interest expense 36,727 36,771
Interest income ( 61) ( 82)
Loss on impairment of fixed assets 4,089 0
Other, net 4,325 1,556
45,080 38,245
Income before special item and
income taxes 74,681 61,194
Special item:
Reserve for drought 1,747 712
Provision for income taxes:
Current 25,061 28,457
Deferred 1,374 (7,504)
Net income 46,499 39,529
Ans 3.
Introduction
Common size analysis, a vital tool in financial accounting, plays a crucial role in understanding a company’s financial health. This approach simplifies the comparison of financial statements over different periods by converting the figures into percentages of a common base. For a statement of income, this common base is typically the operating revenues. This method provides a clear picture of the company’s operational efficiency, cost structure, and profitability trends over time. By examining the common size statements for the years 2021 and 2022, one can discern significant changes in the company’s financial dynamics. This analysis is particularly useful for stakeholders, including investors, creditors,
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