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17 views43 pagesFree Solution
Accounts
Uploaded by
rushedcystsCopyright
© © All Rights Reserved
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i
or Oo
S2QiAECDUNTING FOR PARTNER
FIRMS: FUNDAMENTALS
2023
the CHAPTER:1
es PARTNERSHIP a
ent Becorsans £2 Section Indian Pai ip Act, 1932, "Partnership" is the relation between persons: |, Firmis sold * Firm is con . v
verted into
* Any change in profit-ch
|
y+ Any new partner is admitted + Any old partner retires
+ Any partner dies + Different firms are amalgamated
Factors Affecting the Value of Goodwill |
The following factors affect &
1¢ of good
+ Location a + The trend of Profit
«Time + The efficiency of Management
sit | «+ Nature of Business + Market Sit + Special Advantages
if Methods of Valuation of Goodwill
Gooduill is valued as per the method stated in Partnership Deed or as per the Method of Valuation agreed by
_6~ ‘he Partners. Following three method are followed for valuing gooduil: er
Cr, ¥v
nt —EEEEE se
7 | Average Profit Method ) Super Profit Method! ) Capitalisation Method
¥ x v “
[Simple Average Weighted Average Capitalisation Capitalisation
ox |_| Profit Method Profit Method of Average of Super
This method is divided into two sub division,
Profit Method Profit Method.
3 — AVERAGE PROFIT METHOD ——
i
Simple Average Profit Method
In this process, gooduil evaluation is done by multiplying the average profit by the number of
purchase. It can be calevlated by using the formula.
Goodwill = Average Profit x Number of years’ purchase
Weighted Average Profit Method
techni 4d when there isa change in profits and giving high importance to
oan profi. I is evaluated by using the formula,
Cooduill = Weighted Average Profit x Number of
Ueighted Average Profit ~ Sum of Profits multiplied by super Profit = Actual or Average Profit Normal Profi
Number of years’ purchase
Goodwill = Super Profit a
rmal Rate of
Normal Profit = Average Capital Employed * Normal Bete
CAPITALISATION METHOD
.as two methods of calculating It.
pitalisation of Average Profit Method
i measured by subtracting the original capital applied from the
‘urn. The formula used is mentioned
ee
Copitalised Valve of Business ~ Average Profit * ifr Rate of Return
Outside Liabilities
Net Assets
Capitalisation method h
In this process, goodwi
‘of the average profits based on the normal rate of ret
Capital Employed (Net Assets) = Total Assets —
Gooduill = Copitolised Valve of Business —
Capitalisation of Super Profit Method
is capitalised, and the gooduil is calevlated.
ctual or Average Profit — Normal Profit
100
G = Sy yo
‘ooduill = Super Profits * ij>-ma) Rate of Return
Here, the super profit
Super Profit = SHARING RATIO
| CHAPTERE
Pitalised ama, |) [~¢
Ach
ial cman | HANGE IN THE PROFIT SHARING RATIO AMONG THE EXISTING PARTNERS
ge impr hating ratio among exiting partners means, one or wor parineey ‘acquires share of profit
In he business trom another partner). It reat nt rcondteation othe to
Sacrificing Ratio
f more partners of the firm have agreed to sacrifice their share oF
New Ratio
Gaining Ratio
ined by one or more partners as a result of sacrificed share In’
ACCOUNTING FOR REVALUATION OF ASSETS AND-——
REASSESSMENT OF LIABILITIES
the partnership fi
a
he revaluation of assats and
ed among the partners’ in
ties in the books of the firm; or
id liabilities in the book of the firm.
| (1) When Revised Values of Assets and Liabilities are to be Recorded:
| The following journal entires a
Asset Ale (Individually)
| ToRevalvation Ale
(Being adjustment made for the increase in the valve of asset)
Revalvation Alc
To Asset Alc (Individvally) Revalvation Alc
hae adjustment made for the recording of unrecorded asset)
Revaivation A/c
To Unrecorded
@eing adjustment made f
{@) For transfer of Balan 3
tal of credit side exceeds total of debit side (Net Gain)
walvation Al Dr.
Partne A (In old profit sharing rati
@eing profit pital accounts of pat
Tf total of debit side exces (Net Loss)
Partners’ capit profit sharing ratio
To Revalvation Alc 7
(Being loss on r ti capital accounts of partners)
Format of Revaluation Account
Revaluation Account
By Assets Alc (Individually)
Increase in value)
By Liabilities Ale (Individually)
(Decrease in Amour
By Unracorded As
By Loss on Reval [@) Increase in valve of assets
jo fd Decrease in amount of tables :
: Decrease in valve of assets -
(iv) Less: Increase in amount of habities ,
Net effect of revaluation
| StopsFind' Share ot casincaicamercaaivataae 0)
{fo ea =
=| ar
Step 3: Calevlation of Prop im
| : . ° ition of Proportionate Amount of Net Effect of Revaluation:
‘or Gaining Partner = Share Gained x Net Cffect of Revaluation
For Sacrificing Partner = Share Sacrificed x Net Effect of Revaluation
Step 4: Pass the following Journal Entry:
ReRarr cn eee
| For Profit on Revaivation:
Gaining Partners’ Capital/Current Alcs Or.
| To Sacrificing Partners’ CapitallCurrent Ales
For Loss on Revaluation:
|| Sacrificing Partners’ Capital/Current Alcs Dr.)
itallCurrent Ales
ee
|
| To Gaining Partners’ Capi
ACCOUNTING TREATMENT OF RESERVES, ACCUMULATED
a |e so
| PROFITS AND LOSSES
( | Journal entry for transfer of Reserves and Accumulated Profit
| 2 i
| Reserve Alc Dr.
ort HH) | lorottand Los Ale (Cr. Blancs) Dr,
Workmen Compensation Reserve Alc Or. [Excess of Reserve over
a Investments Fluctuation Reserve Ale Dr. [kxcese of Reserve:
xm between Book valu
{Tn Old Ratiol
To All Partners’ Capital/Current Alcs
ial entry for transfer of Accumulated Losses: 7
tr Current Ales Dr. EFFECTS OF ADMISSION OF A PARTNER
‘of admission of a partner are
[partnership comes to on end and new partnership comet into existence and the
4, as the incoming partner becomes
‘+ Incoming partner cont:
+ Incoming Partner bec
ADJUSTMENTS REQUIRED AT THE TIME OF ADMISSIG
* Compytation of new ratio and
NEW PROFIT SHARING RATI
partners (including incoming partner) share |) For ‘sharing of premium for goodwill by sacrificing
Promium for Cooduill Ale
1 To Sacrificing Part
i When premium for
‘goodwill is brought
inking
(b) For giving credit of incoming partner's share of
sacrificing partners
When premium for | In this cai
|gooduill is brought | also be p
Inby new partner | For withdrawing of premium by old (sacrificing) partners
jand is withdrawn | 14 ( Perpetual Existence Transferability of Shores
> United Liability ‘Separation of Management €--»
from Ownership
ro Types of Companies | r=
} aw ea
| SWispanies on the basis oF labilties )compories on the basi of mambOR. OOM
| ‘Companies limited by Shares + One Person Companies
« Companies limited by Guarantee + Drivate Companies
«Unlimited Companies + Public Companies
—— MEANING OF SHARES
In simple words, a share indicates a unit of ownership of the particular company.
a NATURE OF SHARES
| Shares of a company are treated as goods under the Sale of Goods Act, 1930. These can be!
| hypothecated and bequeathed. ve
|
: |
KINDS OR TYPES OF SHARES
‘A.Company can issve two types of shares, as per Section 43 of the Comp
écquieysharée | a r
hare Capit sve of shares.
KINDS OR TYPES OF SHARE CAPITAL
its Memorandum of
jominal Share Capital: pan
f capit 2y the company by
| Authorised) Registered or N
| Tequires to prescribe the maxim
| during its lifetime
+ [EBUBASHAIAIDADILAI: This implies the specified portion ofthe company’s authorised capital
| offered to investors a
|» SUBBEFILIEASHGREICAILA!: The portion of the issued capital, which has been subscribed by #
known as subscribed share capital
which has been called by the
+ CGUGA2UPNCAPIEGL: The portion of subscribed capital,
shareholders for payment
I The part of subscribed capital that is not called up yet, Such
the ever winding up of company.
The amount of money paid by shareholders for holding
‘shareholders pay the entire amount at once,
> kal om Feceive applications
“ful subteription Tn cate of ull
(@ On receipt of applica
Bank Ale
Dr,
To Share Application Alc
(Geing application money received for
(©) On allotment of shares
Share Application Alc
To Share Capital Ale
(Being application money
shares)
© Conve,
m (Boa) 4 Ht
Peas oe of shares transferred to share capital account on their allotment)
OF certain | II. Under Subscription -
| | | Telsave is said to have been under subscribed when the company receives applications for fy BE
Npany, || | shares than offered to the pubic for subscription
— | | Anthis case comp Iny | not to face any problem regarding allotment since every applicant will be allote
the shares applied for. But the company can proceed with allotment provided the subseriation for shares i
least equal t ui
equired n of shares termed as mirimum subscription.
III. Over Subscription i
number of shares than the number of shares offered to the
n it is a case of over subscription.
has offered. In case of over subscription, company |
following options:
s been | +iRejactionof Excess Applications and Money returned: The company may reject the applications
shares in excess of the shares offered for issue and a letter of rejection is sent to such applicants,
Share Application Ac Dr.
To Bank Alc
from| (Being application money on. shares refunded to the applicants)
_ + CxCessapplication money adjusted towards sum due on allotment:
Shares Application Alc Dr.
To Share Allotment Alc
(Being excess application money adjusted towards sum due on allotment
| Ifthe application money received on partially accepted applications is
_ adjustment towards allotment money, the excess money is refunded, Ho
the directors Vv
When company recei
ciation, |
Shares] | | A company c
|
ot allot more shares than wha PRIVATE PLACEMENT OF SHARES ~
Private placement by inviting to subseribe its
selected group of per y b @ private placement of
Emplo or employees of a compe
holding 4 r, the shares of the ¢o
SWEAT EQUITY SHARES
The sweat equity directors or employees for non
| consideration or at ture of intellectual property ii
sin any form.
ISSUE OF SHARES FOR CONSIDERATION OTHER THAN
A compnay may issve fully paid shares for consideration other than cash, in the followin
Iolssteof Shares to Promoters
Incorporation costs or formation expenses Alc Or.
Sage aria Ale Re-issue of Forfeited Shares
)
ank Ale Dr. (Amount received on os re-issue)
shares Forfeiture Alc Or.
Jo Share Capital Ale
To Securities Premium Reserve Ale
When all forfeited sharers shay
]
|
]
(if shares are
es are not issued, Ze, only a part of such shares Is re-
surplus in share forfeiture account related to these shares sh °
eo ese shares should be transferred to capital
ad
2.
$
a OF A COMPANY
| Balance Sheet is prepared and presented in the form prescribed in Schedule TH, Part Tof the
j
, |
i
|
| Act, 2013, and is broadly divided into two parts, (i) Equity and Liabilities (i) Assets:
4
| Proforma of Balance Sheet (As per Revised Schedule II) Fi
Disclosure of Share Capital in Balance Sheet
pe Particulars
Equity and Liabilities
Shareholder’s Funds:
_(@) Share Capital
‘| @) Reserve & Surplus
ney Received against Shares
rants Equity Shares of & .. Each
—— Preference Shares of —... Each
‘Subscribed Capital
—— Equity Shares of @ Each
um Preference Shares of & Each
Called-vp Capital
- Shares of &
Paid-vp Capital
Called-up Capital
Less: Calls in arrears:
1 by Directors
2. by Others
Add: Share forfeited:
Each, & ....... Per share calted-up | People holding debentures are known as debentureholders. Debenture holder
1 : company.
Types of Debentures |
» Secured or Mortgage Debentures Redeemable Debentures «~~
» Unsecured or Naked Debentures Irredeemable Debentures «-~
» Registered Debentures Convertible Debentures <==
> Bearer Debentures Non Convertible Debentures <-
{Debentures can be Issued |
eo | re en te ee ON
For Cash ( ) For Consideration Other than Cash
Y Y fi 7
Ata Ata —‘To Promoters To Vendors
Be Bede Dicount ToUnderwriters yy, naam
When assets When a/business
are purchased |s purchased and
and debentures ;
‘are Issued.
——— FOR CASH
(i) Issue of Debentures at par
e issued at a value more than its face value or nomina
Hider ie cpa Pita To__% Debentures Ale
‘@eing the debentures alloted to promoters)
(ii) Issue of Debentures to Underwriters
(a) | Underwriting Commission Alc
To Underwriter’s Alc
(Being the underwriting commission due)
Underwriter’s Alc
Io......% Debentures Alc
(Being the allotment of debentures to underwriters for the commission
due to them)
(iii) Issue of Debentures to Vendors
Debentures can also be issued to vendors against purchase of assets and b
The Journal entries passed are : ‘ assets and lablites taken our from vendor)
purchase consideration is mo ' ‘between th
| re than the di v
“net assets acquired), the difference Weed to Cond nec ed
which the money is being paid. =
Sundry Assets Alc
Gooduill Alc
To Sundry Liabilities Alc
To Vendor's Ale
(Being the assets and liabilities taken our from vendor)
Dr
Dr.
(li) When purchase consideration is les than the difference between the valve of assets and liab
such a cash, the excess of net value of assets our purchase consideration is transferred to Capital
Account because the transaction has resulted in a gain to the company which is eapital in natu
Sundry Assets Ale
To Sundry Liabilities Ale
To Capital Reserve Alc
To Vendor's Ale
@eing the assets and liabilities taken over from vendor)
(iv) When debentures are issued to vendors.
aE
To% Debentures Alc :
ISSUE OF DEBENTURES WITH TERMS OF REDEMPTIO \
(i) Debentures issued at par and are Redeemable at Par :
Particulars
Bank Alc
To Debentures Application and Allotment Alc
(Being the application money received) Bonk Alc
‘Being the application money received)
Particulars
Allotment Alc
Being the application Money received)
Debentures Application and Allotment Alc
Loss on Issue of Debentures
To. & Debentures Ale
To Premium on Redemption of Debentures Alc
(Being the debentures Issued at par and redeemable at premium) r ISSUE OF DEBENTURES AS COLLATERAL SECURITY
| Gelateral security means additional, sypporting or secondary security besides a primary secur
company obtains a loan or overdraft from a bank or any other inetitution. Usually the borrensee Gives]
single asset oF a group of assets ral security, If the borrower fails to pay the primary loan
fon the due date of payment, the lender sells theve collateral securities to recover the Gmoune fl
a | Accounting treatment for collateral security
m= | First Method j
| Entry for issve of debentures as collateral security is not passed in the books of account af the timelge
| issuing such debentures. It under the head secured loans on the equity and liabilities part of the:
Balance sheet that debentures have been issued as collateral security as follows:
Balance Sheet (Extract) as at
Particulars
L Equity and Liabilities
‘Non-Current Liabilities
Long-term Borrowing
Notes to Accounts It is Shown in the Balance Sheet as
Balance Sheet (Extract) as at...
I. Equity and Liabilities
‘Non-Current Liabilities
Long-term Borrowing
Bank Loan
6,000 8% Debentures of € 10 each
| Less : Debenture Suspense Account
INTEREST ON DEBENTURES ~
When company issues debentures, immediately it goes under the obligation of paying fixed int
yearly) until debentures are repaid. The percentage of interest payable is calculated on the
Debentures. As per Income Tax Act 1961, a company must deduct Income tax at a preseribed Ri
interest payable on debenture if it exceeds the prescribed limit and this is called as Tax Ded
(IDS). It has to be deposited to the tax authorities. No interest is payable on deb
collateral security.
Journal Entries for Interest on Debentur
(i) When Interest is Due: Discount or loss on issue of Debentures is a Capital loss for a company, which is written off in th
incurred, Le, in the year the debentures are allotted from :
( General Reserve
LW) Secunties Premium Reserves (id Statement of profit andl lOete
0,000 The Journal entry passed is
rticvlars:
| |General Reserve Alc
000 Securities Premium Reserve Alc
|Statement of Profit and Loss Ale
| To Discount or loss on issue of Debentures Ale
— _[@eing the discount on loss on issue of debentures written off)
ae MEANING OF REDEMPTION OF DEBENTURES
| Redemption of Debenture means repayment of the principal amount of debentures to the debenture
by the company. The terms and conditions for the redemption of debenture is usually mentioned on {
| prospectus. As soon as the debentures are redeemed the issuing company discharges the lability on
of debentures in accordance with the terms of issue.
[Methods of Redemption of Debentures
IM ne
Redemption of Debentures 9 en Redemption of D
on Maturity in Lump Sum
sree
(1) Redemption of Debentures on
\d, companies redeem debentures TL When Debentures are Redeemed at Premium
0 On Debentures becoming due for Payment
S Particulars
—% Debentures Alc
Premium on Redemption on Debentures Alc
To Debentureholder’s Alc
(Being the amount dve at a premium to debentureholder’s)
(W0 On Payment to Debentureholders
Particulars
Debentureholder's A/c
To Bank Ale
(Being the amount paid at a premium to debentureholder’s) . MEANING OF FINANCIAL STATEMENTS =
Financial statements are written records that convey the business activities and the fing
performance of a company.
NATURE OF FINANCIAL STATEMENTS
ie
| The financial statements are not absolute facts because they are affected by recorded facts, accounting)
conventions and personal judgements.
| Racorded Facts: The term recorded facts means that the data used for preparing financial statem
drawn from accounting records.
Accounting Conventions: Accounting conventions imply certain fundamental accounting principles which
have gained wide acceptance and which are followed while preparing financial statements:
« Personal Judgements: Even though certain accounting conventions are followed while preparing
| financial statement, still personal judgement of the accountant plays a decisive role in accounting,
|
—_ ct
‘Uses of Financial Statements |
» Determine the financial Helps in decision making <=="
| position of the business Helps in policy making
L--» To obtain credit Useful for stock traders
{ Importance of Financial Statements js
> Importance of the Balance Sheet To the sh
~» Importance of the Income Statement a The Statement of Proft and Loss primarily focuses on a company’s revenues
Particular period. Once expenses are sbtrocted from revenues, the statement.
ted by the notes giving
t of Profit and Loss.
| Cash Flow Statement
The Cash Flow Statement measu w well a n ites cash to pay its debt obi
| jestments,
Format of Balance Sheet
Sheet of. Company Limited as on 31 Maren
Particulars
I EQUITY AND LIABILITICS
1. Shareholders’ Funds:
(q) Share Capital
(b) Reserves and Surplus
(©) Money Received Against Share Warrants
3 re Application Money pending allotment: Pts aia
Ai) Capital Work-in-Progress
(iv) Intangible Assets under Develop,
(b) Non-Current Investments
(©) Long-term Loans & Advances
@ Other Non-Current Assets
2. Current Assets:
(@) Current Investments
(©) Inventories
(©) Trade Receivables
(@ Cash and Cash Equivalents
(€) Short-term loans and Advances
(9 Other Current Assets
Total [1 + 2]
Particulars
eae
T Revenve from Operations
IL Other Income
IIL Total Revenve (I + 11)
IV. Expenses
Cost of Materials Consumed
| Purchases of Stock-in-Trade
2s in Inventories of Finished Goods, SIGNIFICANCE OF FINANCIAL STATEMENT ANA U
Analysis of financial statements helps the finance managers in "
* Assessing the operational efficiency and ‘managerial effectiveness of the company. _
* Analyeing the financial strengths, weakness and creditworthiness of the company,
~ Analyzing the current position of financial analysis.
| "Assessing the types of assets owned by a business enterprise and the liabilities
| enterprise.
| * Providing information about th
relation to equity
cash position company is holding and how much debt the’
[+ Studying the reasonability of stock and debtors held by the company
f OBJECTIVES OF FINANCIAL STATEMENT ANALYSIS—
| © Assessment of Past Performance and Current Position.
| Prediction of Net Income and Growth Prospects.
| + Assessing the Managerial Efficiency
| + Assessing the Short-term and Long-term solven
cy of the enterprise
+ Inter-firm Comparison.
+ Make Financial Statements Explainable and Understandable
IMPORTANCE OF FINANCIAL STATEMENT AN
int: Increase in size and complexities of factors a
necessitate a scientific and analytical approach in the management of dhe
‘A change isthe price level makes analysis of financll
is ignore change in value of money.
Gesu Years ie valid ax ascounting recor
‘i aa: a ibe situation of window dressing of books of accounts, financial ‘analysis me
+ Variation In Accounting Practlées: For intor- 3
followed by the firms do not vary si feanly, an ae i
—TOOLS For FINANCIAL STATEMENT ANALYSIS
8 or comparative financial statements deal
to
‘hy! | comparative: statement Comparative statements
comparison of differant items of the Statement of Profit end Loss and Balance Sheets of two or more
| Separate comparative statements are prepared for Statement of Profit and Loss as Comparative
Statement and for Balance Sheet as Comparative Balance Sheets, This analysis is also known as
4
information is followed for p
Analysis.
Common’ ()'SizeiStatements: A vertical presentation of financial
Common-Size Statements or Common-Size Financial Statements Besides, the rupee value of fina
statement contents are not taken into consideration. But only percentage Is considered for. preparing
ms of financial statements of two or more
common size statement. In such statements individual iter
rted into percentages taking a common base, This analysis Is
placed side by side and thereafter conve
known as Vertical Analysis
+ Cash’ Flow Statement: Cash Flow Statement
during the accounting period, classified und
Activities, It shows the changes in cash position
+ Ratio‘Anialysis: Ratio analysis is an attempt of develo
(or group of items) in the Balance Sheet or Statement
internal parties of business concern but also useful to e)
solvency, profitability and capital gearing of an enterpt
|
|
is a statement showing flow of cash and cash
ler Operating Activities, Investing Activities and:
from one period to another,
ping meaningful relationship b
of profit and loss, Ratio analysis is
‘ternal parties. Ratio analysis hi
rise,
x! OBJECTIVES OF ACCOUNTING RATIOS
Locate weak spots of business which needs more attention
Provide information for ‘making cross-sectional analysis.
.
** Provide information for making time-series analysis.
+ Provide deeper analysis of the liquidity, solvency, activity and profitability of the business,
+ Provide information vseful for making estimates and preparing the plans for the future.
Advantages of Accounting Ratios . 4
Estimate about the trend of the b
» Helpful in Analysis of financial statements
“> Simplification of accounting data Fination of Ideal $
Helpful in comparative study ct
» Helpful in locating the weak spots of the 88 Study of financial So
-> Helpful in forecasting
CLASSIFICATION OF ACCOUNTING RATIOS—
iy Oats Accounting Ratios re
v v
Solvency Ratios { Activity Ratio
eee
LIQUIDITY RATIOS —
Liquidity ratios analyse the ability of a company to pay off both its current liabilities
‘well as their long-term liabilities as they become current.
# Calevlating the current ratio of a company or individual is the sin
liquidity. The current ratio looks at a company's total cur
their total current liabilities like debt ot n BIT = Carnings
Fixed Interest Charges « 1
Proprietary ratio is q type of
holders oF proprietors tow.
Proprietary Ratio =
Debt to Capital employed Ratio - The debt
total debt by its total capital, which is total
Defore Interest and Taxes
terest payable en long-term boroulngt
‘clvency ratio that is useful for determining the am
‘ards the total assets of the business
Shareholder’s Fund I Total Assets
tr caPtal employed rato i alevated by dividing ee
Gebt plus total shareholder's equity, Tt meagu
leverage of a company by compating otal labiities to total enpital, a
Debt to C
Capital Employed Ratio - — Total Debt
| Total Debt + Shareholder’ Equity
ito
contribution of share|
ACTIVITY RATIOS OR TURNOVER RATIOS
Tumover ratios or activity ratios represent the amount of assets or tablities that a company replaces in
J | relations to its sales.
| | « MnivanitaryTUFRGVER Ratio : 1 is o ratio which shows the number of times a company has sold and fi
the stock or inventory in a given time period.
Inventory Turnover Ratio =
Cost of Revenue from Operations ! Average Inventory
Opening Inventory + Purchases + Direct. Expenses - (|
Average Inventory = (Opening Irventory + Closing Inventory) #2
determine the efficiency by which
* MHad@NRaCelvablesTUHOVERIRAtIO : It is used to ‘
managing the credit that is being extended to its customers and evaluate how long
business to collect the outstanding debt in the accounting period,
Trade Receivables Tumover Ratio = Net Credit Revenwe from Operates
Trade Receivables include Debtors and Bills
| Wher Cotto? Revenve from Operations «
|
| E RATIO
PROFITABILITY RATIOS OR INCOME RATI
od to assess a business abilil
Profitadsity fat
he Gross Profit and Rey
eamng tween the
+ OromEProritRatio
Net Saiex from Operations 00
and Revenue from!
xpenses] | Revenue fig
+ Operating Ratio
: ingiProfit:Ratlo
de, Net Sai
+ NebProfitRatio : |:
Ratormonanvestmant s the ship between Net Profit/Carnings beforgt
}) Sapital empleyed This ratio is also known as ‘Rate of R
Capital’.
eturn’ or ‘Return on Capi
Return on Investment =
Net Profit before Interest, Tay and Dividends Capit
Jatt tall
Lol gee a. CREE
X
ASH FLOW STATEMENT
CHAPTERTHS
CASH FLOW STATEMENT 6 ei
in financial pos s
of cath
OUTFLOWS OF CASH 7
led t ase in cash and
clas flows of cash
‘| INFLows
A transactions that lead to
cash equivalents ar
om Operation yy - ieee, i
erve from Open, 4 EQUIVALENTS
100 eee
icomes mn
ations, /e, Net fe
ONS OF CASH FLOW
STATEMENT
provided,
to base accounting
\
rot « substitute forthe |
Statement, \
{4% determine net change in cash ond cash) |, 1 ignores all the non:
: Equivalents.
) ——CLASSIFICATION OF BUSINESS ACTIVITIES: THE REVISED:
ACCOUNTING STANDARD-3
This states that the changes in inflows and outflows of cash and cash
“() Cash flow from Operating Activites.
the oct (Ca * Goodwill Patents and Trademarks émortised
* Interest on Bank OverdrattiCash Credit
* Interest on Borrowin
198 (Short-term and Long-term) and Debentures
+= Writing off Underwni
ting Commission!Share Tssve Expenses
* Loss on Sale of Fixed Assets
* Therease in Provision for Dovbttui Debti*
(©) Less: Items to be Deducted
‘Interest Income
‘+ Dividend Income
+ Rental Income
* Cain @roft) on Sole of Fixed Assets
+ Decrease in Provision for Doubtful Debts*
©) Operating Profit before Working Capital Changes (A + B~ ¢)
© Add: Decrease in Current Assets and
Thereate in Current Wabitit
+ Decrease in Inventories (Stock)
* Decrease in Trade Receivable: O
* Decrease in Accrued Incomes
+ Decrease in Prepaid Cxpentes
‘= Increose in Trade Payables (Credito:
|» Increasse in Outstanding Expenses
+ Increase in Advance Incomes
(P Loss : Increase in Currant Ascets and
Decrease in Current Liabilities
+ Increase in Inventories (Stock)
Increase in Trade Receivables (Debtore/tills Receivable)
+ Tnerease in Accrued Incomes
+ Increase in Prepaid Cxpenses
+= Decrease in Trade Payables (CreditrsIBils Payable)
+ Decrease in Outstanding Expenses
lebtor/Bils Receivable)
rs! Bills Payable) Claim on
{ca Fow trom Cr Used in Inveting etter nreT¥ OBOE)
TIL Cath Flow from Financing Activities
«Proceeds from Issve of Shares and Debentures
| =Proceeds trom Other Long-term Borrowings
|. «IncreoselDecreace in Bank Overdraft and Cosh Credit
= Payment of Final Dividend (on both Equity and Preference Share Capital)
| + Payment of Interim Dividend
«Payment of Interest on Debentures and Loane (Short-term and Long-term)
+ Repayment of Loans
| + Redemption of Debentures/Preference Shares
+ Payment of Share Issve Expenses or Underwnting Commission
| Payment for buy-back of Shares as Extraordinary Retivty
| Cash Flow from (or Used in) Financing Activities
| V. Net Increase/Decrease in Cach and Cash Equivalents (I +11 +11)
V. Add: Cash and Cash Equivalents in the beginning of the year
+ Cash on Hand
| +Cash at Bank
| *Short-term Deposits
+ Current Investments
+ Marketable Securities
VL Cash and Cash Equivalents at the end of the year
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