Financial Accounting
Q1. The following is the Trial Balance as on 31st March 2017 prepared by GSA Ltd. (Rs. in crores)
| Particulars | Debit (Rs.) | Credit (Rs.) |
| Capital | 6,000 | |
| Drawings | 1,000 | |
| Cash on hand | 50 | |
| Cash at bank | 1,250 | |
| Sales | 10,000 | |
| Purchases | 4,000 | |
| Loan taken on mortgage | 1,000 | |
| Patents | 500 | |
| Land & building | 3,000 | |
| Creditors | 500 | |
| Advertisement | 5,000 | |
| Debtors | 1,800 | |
| Rates & taxes | 40 | |
| Insurance | 150 | |
| Carriage inwards | 260 | |
| Carriage outwards | 250 | |
| Legal expenses | 200 | |
| Total | 17,500 | 17,500 |
However the auditors of GSA Ltd. did not approve of this trial balance. You are required to rectify and prepare the new trial balance. Justify your answer as to which errors can be detected through the trial balance.
Q2. Classify the following into revenue, capital and deferred revenue expenditure and interpret your results:
1. Amortisation of Patents
2. Goodwill of another business acquired
3. Underwriting commission paid in a public issue of company’s shares
4. Loss on sale of Plant and Machinery
5. Cost of market research of a new product
6. Purchase of second-hand laptops for office use
Q3. Following are the balance sheets of Suzuki Ltd. & Honda Ltd. as on 31st March 2017 together with the additional information for the year ended on that date:
| Liabilities | Suzuki Ltd. | Honda Ltd. | Assets | Suzuki Ltd. | Honda Ltd. |
| Equity Share Capital | 20,00,000 | 3050000 | Goodwill | 3,00,000 | 4,00,000 |
| Reserves | 50,500 | 60,000 | Furniture | 3,20,000 | 2,40,000 |
| Profit & Loss A/c | 12,250 | 102200 | Plant & Machinery | 6,59,000 | 7,29,000 |
| 9% Debentures | 3,50,000 | 250000 | Office premises | 10,27,000 | 19,00,000 |
| Bank overdraft | 11,250 | 14,800 | Stock | 66,000 | 93,000 |
| Sundry Creditors | 36,000 | 58,000 | Debtors | 85,000 | 1,75,000 |
| Provision for tax | 20,000 | 15,000 | Miscellaneous Expenses | 23,000 | 13,000 |
| 24,80,000 | 35,50,000 | 24,80,000 | 35,50,000 |
Additional Information (Extract of Profit & Loss A/c)
| Particulars | Suzuki Ltd. | Honda Ltd. |
| Sales for the year | 8,40,000 | 10,50,000 |
| Stock on 31st March 2016 | 60,000 | 1,07,000 |
| Gross Profit | 2,10,000 | 2,50,000 |
| Administrative expenses | 55,000 | 65,000 |
| Selling expenses | 23,000 | 58,000 |
| Net profit (after tax) | 85,000 | 87,000 |
Market price of Suzuki Ltd. Rs. 23 per share and Honda Rs. 28 per share. Dividend paid by Suzuki Ltd. 9.5% p.a. and Honda is 9.8% p.a.
A) Compute any three relevant ratios and comment upon the solvency and financial stability of the two companies.
B) Which company would you recommend for investment? (Support your answers with the computation of any three relevant ratios).