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Financial Accounting For Management 4th Edition Neelakantan Ramachandran, Ram Kumar Kakani - Solutions

This case is an extension of Mini Case 2.3 in Chapter 2 titled “A Bank and a Manufacturer”, wherein you are provided with the abridged balance sheets of two well-known companies, namely, Bank of India Limited27 and Reliance Industries Ltd28. Using common size ‘balance sheet’ statements,
State whether the following statement are True or False:A final dividend for the year is shown in both the profit and loss account and the balance sheet.
State whether the following statement are True or False:External Commercial Borrowings (ECB) are made for long-term investments often in fixed assets.
State whether the following statement are True or False:In common size analysis, we measure and compare every item of balance sheet with respect to sales.
This case is a comprehensive case of four publicly listed limited companies discussed earlier in the book, namely, Infosys Technologies,29 Raymond,30 Blue Dart Express,31 and Colgate-Palmolive India.32 We provided you with their balance sheets in Mini Case 2.4 of Chapter 2 and we provided you with
Which profit margin measures the overall operating efficiency of the firm?(a) Gross Profit Margin(b) Net Profit Margin(c) Operating Profit Margin(d) None of the above
True or FalseFinancial ratios are the principal tools of financial analysis because they standardize financial information so that comparisons can be made between firms of varying sizes.
Use the data in the following table of financial ratios for Awadh Textiles Limited and answer the following four questions:(i) How liquid is Awadh Textiles Limited?(ii) Is Awadh Textiles generating adequate operating profits on the firm’s assets?(iii) How is Awadh Textiles Limited financing its
Discuss the utility of ratios from various stakeholders’ perspectives. Also identify the three key financial ratios from each stakeholder’s perspective?
State whether the following statement are True or False:Trend analysis involves comparing a firm’s financial ratios with similar ratios for another firm in the same industry.
An increase in the average collection period could have been caused by:(a) Few big customers quickly paying off their accounts(b) Management carefully enforcing its collection policies(c) Management shortening its credit terms to customers(d) None of the above
True or FalseThe Banks and Financial Institutions would have high Equity Multiplier.
What are the financial numbers and ratios to be used and computed to find out “Gearing” of a company? What does “Gearing” of a company convey to us? Is positive gearing a good figure? Can we say that higher the gearing of a company the better it is for all stakeholders?
Mukta Arts is a firm started by the well-known film director Mr. Subhas Ghai. The following data has been taken from the company’s website:The above results were declared on June 30 of the latest year. Along with the above results, the company also attached the following notes:The accounting
From the following particulars, prepare the balance sheet of Rajnikant Fans Limited as on 31st March, current year:Current ratio is 2; Working capital is ₹40,00,000; Capital block to current asset is 3:2; Fixed asset to turnover is 1:3; Sales cash/credit is 1:2; Debentures/Share capital is 1:2;
Should one make use of Contingent Liabilities in financial analysis? If yes, how can one make use of them?
True or FalseLiquidity of a company is of a major concern for long-term creditors and the management.
Daku Mangal Singh announced his Swayamvar (also known as marriage match selection process). Shweta always wanted to spend time with a Daku. Like some of us, Mangal was weak in finance and thought that a core competence in Financial Accounting and Analysis for his future partner is a must (applying
The short-term solvency ratios examine how quickly a firm’s assets can be converted into cash. The quick ratio is computed by what formula?(a) Current assets/Current liabilities(b) (Current assets – Stock)/Current liabilities(c) (Current assets – debtors)/Current liabilities(d) (Current
State whether the following statement are True or False:One of the biggest advantages of ratios is that they standardize financial information.
One fine day, Ram was roaming around areas near Bani Park, a posh market area of Jaipur. To his surprise, he found multiple Ram(s).Ram remembered his childhood tragedy … when his parents, his brothers and all other family members were performing a traditional ceremony in Haridwar Kumbh Ka Mela
State whether the following statement are True or False:If a firm is profitable, it also has a positive cash flow.
Which of the following is NOT included in the calculation of the quick ratio?(a) Accounts receivable(b) Fixed assets(c) Accounts payable(d) Cash
True or FalseA combination of the margin on sales ratio, efficiency ratio, and long-term solvency ratio is popularly known as the DuPont analysis.
Discuss and inter-connect these ratios; Dividend per share, Earning per share and Dividend Payout Ratio?
Using published data, we provide select financial ratios of eight Indian steel players listed in the Bombay Stock Exchange (BSE).Based on the ratios, answer the following:1. Identify the company that is having the highest asset utilization ratio.2. What is the reason for the wide range of
Annexure 7.3 on the OLC contains an introduction on the Indian Paper Industry along with graphical trends on few ratios with a focus on three specific industry players in the same. This case is a continuation of that discussion. In the same annexure 7.3 27-year graphs of some more key financial
State whether the following statement are True or False:Using debt is a two-edged sword. When times are good, debt financing can make them very good, but when times are bad, debt financing makes them very bad.
A firm might also want to know how rapidly it is turning over its inventories during the year so as to gain some insight about the liquidity of inventories. What is the formula for calculating the inventory turnover ratio?(a) Total annual sales/Inventory(b) Credit sales/Inventory(c) Cost of goods
True or FalseA company with shorter operating cycle has better liquidity position.
What are the significant assumptions we make while comparing financial ratios of various companies in the same industries? Discuss the implications of the above assumptions for a user of financial ratios.
Arvind54 and Raymond55 are two companies which are in the same business of manufacturing of textiles. Arvind, part of the Lalbhai group, was founded in 1931; with its headquarters located in Ahmedabad. Raymonds, part of the Vijayapath Singhania group, was founded in 1952; with its headquarters
State whether the following statement are True or False:The Du-Pont Analysis is a method that is used to analyze a firm’s profitability and return on equity.
State whether the following statement are True or False:Shareholders’ equity turnover shows the management’s ability in terms of efficiently utilizing the shareholders’ funds, both with respect to efficient operations and in terms of efficient financial management.
State whether the following statement are True or False:Equity multiplier measures the ability of the owner’s equity to command resources.
Please identify the correct position for each of the following in a manufacturing account: Newspaper: Business Type 1. Printer's Wages 2. Newsprint and Ink Direct Material Direct Labour Direct Expenses Factory Overheads
State whether the following statement are True or False:Published industry average ratios provide ratios that are classified by industry and firm size.
State whether the following statement are True or False: Free cash flows from an asset perspective, represent the after-tax cash flows generated from financing the business, less the firm’s investment in assets.
State whether the following statement are True or False:Fixed assets with an indefinite life are not depreciated.
Depreciation is related to(a) Evaluating the efficiency of an asset(b) Valuing the asset(c) Distributing the cost of the asset over its useful life(d) None of the above
True or FalseFixed assets with an indefinite life are not depreciated.
Pappu & Gappu Textiles began operations in 2010. At the beginning of the year the company purchased a machinery of ₹1,00,000, with an estimated useful life of 10 years and no residual value. During the year, the company had made an expense of ₹20,000 and ₹80,00 as salary and other
What is the difference between the ‘straight-line method of depreciation’ and the ‘written down value method’? Which method is more appropriate for reporting earnings?
Amrapalli Hotels Limited commenced operations as on April 1, 20X5. Khushi, a recent MBA graduate from Imphal and a shareholder in the company was studying the detailed annual report just received by her for the year ended March 31, 20X7. She observed that the profits before tax for the year have
State whether the following statement are True or False:Depreciation is the reduction in the value of current asset on account of wear and tear, exhausting or being outdated.
In 20X6, an equipment owner sold a front-end loader for ₹75,000. The loader had a book value of ₹1,00,000 and accumulated depreciation of ₹70,000. What is the accounting gain/loss on the sale of the loader?(a) ₹25,000(b) ₹30,000(c) ₹75,000(d) ₹45,000
True or FalseAll cheques are bills of exchange, but all bills of exchange are not cheques.
Set up in 1986, Ambuja Cements Limited (Ambuja) had aggressively pursued growth to increase its size ten-fold in one decade. The total cement capacity of the company is 18.5 million tonnes. Its plants became the most efficient in the world with environment protection measures that were on par with
What is the difference between a ‘bill of exchange’ and a ‘promissory note’?
Manohar Kumar purchases an auto for ₹2,00,000 from Fairdeal Automobiles. After consulting with the experts in the auto field, Manohar decides that the estimated life of the auto is 8 years. After the life period, the auto is estimated to fetch ₹20,000.Questions(a) Calculate the depreciation
For Avantika, what started as puppy love actually turned into an everlasting bond with DuPont Decomposition Analysis? Like two lovebirds, Avantika was dating financial ratios for almost a decade. In the table below – Avantika has provided you with four ratios related to Profitability Analysis
State whether the following statement are True or False:Goodwill, patents, and leasehold property are examples of accounts wherein straight line depreciation is used.
LIFO method of inventory valuation on cost basis is suitable for items that are(a) Perishable(b) Expensive(c) Non-perishable(d) None of the above
True or FalseIn scenarios of falling prices, the FIFO method would show a higher profit than the LIFO method.
Can a leasehold property be depreciated? If yes, which is the appropriate method?
Champakali Spirit Oil Limited is a bulk distributor of kerosene. For the month of July 2010, his transactions were as follows:The CEO of the firm, Chetan Jain had no idea about the valuation of the stock and its impact on the profitability of the business so he asks his friends to help him out.
ITI Ltd, India’s first Public Sector Unit (PSU), manufactures and supplies telephone and communications equipment and parts. It is listed on the Bombay Stock Exchange. We present excerpts from the annual report of ITI Ltd for the financial year ended March 31, 2010.(a) What does the above
State whether the following statement are True or False:Depletion method is suitable in cases of depreciating assets, such as mines, quarries, and oil exploration.
Bheesma Department Store’s beginning inventory cost was ₹1,40,000 and it was retailed for ₹2,80,000. Purchases for the period amounted to ₹3,90,000 and were priced to sell at twice that amount. Sales for the period, all at normal retail, were ₹6,00,000. How much is the cost of Bheesma’s
True or FalseGross Profit = Sales + Cost of Goods Sold = Sales – (Purchases – Ending Inventory)
How does the treatment in books differ for short-term investments vis-à-vis long-term investments? Explain.
Inventory, Cost of Goods Sold and Net IncomeA. Fill in the missing data for the retail organization:B. Fill in the missing data for the manufacturing organization: Particulars Sales Gross Margin Closing Inventory Opening Inventory Net Cost of Purchases Operating Income Operating Expenses Cost of
Kaushalya Infrastructure Development Corporation Limited (henceforth, Kaushalya) is a BSE listed company based in Kolkata. The company’s website revealed three lines of business:1. Kaushalya Nirman: Creation of World Class Highways and industrial Infrastructure.2. Kaushalya Gram: Electrification
Abdullah is happy with the development all around. Dubai was rocking. A camel ride to a Mercedes ride in a thirty years life-span has made most of the economists to think on all the well-established developmental models on growth phases. Abdullah has learnt from his parents that how tough it was
Sathvahana Ispat Ltd is a listed company in iron and steel industry, engaged in the manufacture and sale of pig iron, ductile iron pipes, and also metallurgical coke – an input material for pig iron. Below is the profit and loss account for the year ended March 31, 2015. The employee benefit
State whether the following statement are True or False:In scenarios of falling prices for Raw Materials, the FIFO method would show a higher profit than the LIFO method.
As the name reflects, Mukand Engineers Limited (henceforth, Mukand) is a Mumbai-based Engineering Construction company. Neelkanth was holding a few equity shares of the company and was not happy with its share price movements. Almost every day he would look at his portfolio at moneycontrol.com and
A young graduate from Birla Institute of Technology (BIT)-Ranchi, Anand, patents a design for a life saving injection for a dreaded disease. Devoid of cash, he is not able to commercialize his innovation. Another graduate from BIT, Srinivas, offers to buy out this patent for a sum of ₹A. The
State whether the following statement are True or False:Redemption of debentures means repayment of money that was taken by the company while issuing the debentures.
State whether the following statement are True or False:Rights issue is a process whereby the existing shareholders are given an opportunity to invest in more shares of the same company (on payment).
State whether the following statement are True or False:There are two parties in a promissory note, i.e. the ‘maker’ and the ‘payee’.
Bank reconciliation problems at Dhandapani Trading House: Dhandapani Trading House received the bank statement which shows a balance of ₹11,467 on June 30. Assume further that the cash balance shown in company’s record is ₹7,500. The following differences between the bank statement and
Ashok Leyland Limited, a Hinduja Group company, is a popular truck manufacturer in India. In the recent past it has been having a hectic time in its items related to capital employed. We reproduce the relevant portions of the balance sheet from its annual report for FY2005 to appreciate the
State whether the following statement are True or False:Gross Profit = Sales + Cost of Goods Sold = Sales – (Purchases – Ending Inventory)
A debtor, M/s Khiladi has made an online transfer of ₹8,500 in the bank account. In the BRS starting with pass book overdraft(a) ₹8,500 will be added to pass book overdraft.(b) ₹8,500 will be deducted from pass book overdraft(c) ₹1,7000 will be added to pass book overdraft(d) This amount
Refer to the Chapter Opener on the outsourcing potential. Briefly comment on the question related to IFRS-convergence in India and its implications on this potential? If you were part of the regulatory set up – what would you do with respect to IFRS implementation in India? Discuss. K Accounting
True or FalseManagement remuneration packages, having profit-linked bonuses, may influence the selection of a depreciation method.
State whether the following statement are True or FalseCash payments relating to forward contracts are held for dealing/trading purpose will be classified as investing activity.
At the start of the new academic year, Sehwag University’s School of Business was facing lots of problems (in terms of student discipline). More than half of the students were not attending classes. Dean Prof. Santrupt Dandewala Saaheb was looking at ways of improving the classroom attendance. As
State whether the following statement are True or FalseCash payments to acquire shares or debt instrument of other enterprises and interests in joint ventures will be classified as investing activity.
State whether the following statement are True or FalseCash repayments of amount borrowed will be classified as operating activity.
This case is in continuation to Solved Problem 5.2 of this Chapter on Kataria Plastics. The promoter of the firm, Kattu provides you with its third period of transactions. You are required to prepare its trial balance and its financial statements.PROBLEM 5.2Tushar Kataria Makes PlasticsOne day,
State whether the following statement are True or FalseA cash flow statement takes items according to the cash basis of accounts.
State whether the following statement are True or FalseWorking capital requirements are indirectly influenced by the sales volume.
Fill in the BlankWorking Capital = Total Current Assets - ___________________.
This case is in continuation to Mini Case 2.6 of Chapter 2, on Ram Traders Limited and his chilli business. Please solve the same problem using book-keeping process of recording entries and creating financial statements.Data from Chapter 2, Mini Case 2.6Ram decides to start a business in the local
Fill in the BlankInvestment in _____________ is required to expand the capacity or to improve the current facilities for operation.
Relate items in column A to all items in Column B Column A a. Acquire assets by incurring debt b. Distributions to Owners C. Investments by Owners d. Use assets to acquire other assets e. Use assets to extinguish debts Column B I. Debit Owners' Equity and Credit Asset II. Debit Liability and Credit
State whether the following statement are True or False:The preparation of an income statement and balance sheet is the objective of accounting.
The CEO of Reliable Petroleum Limited, Peter Lakra, was weak in finance. On the last day of the year i.e., 31st March, he stood before the CFO & accounts department demanding that the firm give the financial statements of the company without any delay (being the last day). The CFO was not able
True or FalseAn account is a basic information format used for recording transactions relating to revenue, expense, asset, liability or owners’ equity.
What is the main purpose of a journal and ledger in maintaining the accounting records?
Bade Miya & Chote Miya decided to buy a house. They searched and found a house worth ₹25 Cr at a good locality. Now the problem of funding arises.They decided to take a Housing loan. The bank was willing to give the loan of ₹18 Cr based on the income of Bade Miya and an additional loan of
State whether the following statement are True or False:Assets + Expenses + Dividends = Liabilities + Capital + Revenue
Finally the day has come when Debjit can leave his 7–9 boring job of one of the blind alley of North Kolkata. Debjit always dreamt of having his own organization. But lack of capital and business contacts had made him to operate his business only in dreams. But yesterday’s sudden contact with
Purchase of a new car debited to Car Maintenance account. It is:(a) Principle Error(a) Compensating Error(b) Posting to Wrong Account(c) Omission
True or FalseIncreases in assets are debits and decreases in assets are credits to the respective asset accounts.
What are ‘closing journal entries’? Can an organization with minimal transactions do away with closing journal entries?
This problem has been detailed in Chapter 2, Mini Case 2.6.Required:Prepare the journal, ledgers, worksheet, and income summary for the period and a balance sheet as of end of the period.Data from Chapter 2, Mini Case 2.6Ram decides to start a business in the local vegetable market of Jamshedpur.
Do you agree or disagree with the following statements? If you disagree, please do correct them:Machinery is a liability.

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