The financial statement and operating results of Alpha Limited revealed the following position as on 31st March, 2023: Equity share capital (10fully…

CA Intermediate · Financial Management and Strategic Management · MTP · January 2025
The financial statement and operating results of Alpha Limited revealed the following position as on 31st March, 2023: Equity share capital (10fully paid share) ₹ 20,00,000Working capital - 6,00,000Bank overdraft - 1,00,000Current ratio 2.5:1Liquidity ratio 1.5:1Proprietary ratio (Net fixed assets/Proprietary fund) .75:1Cost of sales - 14,40,000Debtors velocity 2 monthsStock turnover based on cost of sales 4 timesGross profit ratio 20% of salesNet profit ratio 15% of sales Closing stock was 25% higher than the opening stock. There were also free reserves brought forward from earlier years. Current assets include stock, debtors and cash only. The current liabilities expect bank overdraft treated as creditors. Expenses include depreciation of 90,000. The following information was collected from the records for the year ended 31st March, 2024: Total sales for the year were 20% higher as compared to previous year.Balances as on 31st March, 2024 were : Stock - 5,20,000, Creditors - 4,15,000, Debtors - 4,95,000 and Cash balance - 3,10,000.Percentage of Gross profit on turnover has gone up from 20% to 25% and ratio of net profit to sales from 15% to 16%.A portion of Fixed assets was very old (book values - 1,80,000) disposed for 90,000. (No depreciations to be provided on this item).Long-term investments were purchased for 2,96,600.Bank overdraft fully discharged.Percentage of depreciation to Fixed assets to be provided at the rate in the previous year. PREPARE Balance Sheet as on 31st March, 2023 and 31st March, 2024.

Suggested Answer and Working Notes:

Balance Sheets of Alpha Limited Liabilities 31 March 2023 (₹) 31 March 2024 (₹) Assets 31 March 2023 (₹) 31 March 2024 (₹) Equity share capital (10each fully paid) 20,00,000 20,00,000 Fixed Assets 18,00,000 15,39,000 Reserve and Surplus (balancing) 1,30,000 1,30,000 Long term investment - 2,96,600 Profit & Loss A/c (15% of sales) 2,70,000 6,15,600 Current Assets 10,00,000 13,25,000 Bank Overdraft 1,00,000 - Creditors 3,00,000 4,15,000 Total 28,00,000 31,60,600 Total 28,00,000 31,60,600 Calculation for 31st March, 2023 (i) Calculation of Current Liabilities Suppose that Current Liabilities = x, then current assets will be 2.5 x Working capital = Current Assets – Current Liabilities 6,00,000 = 2.5x – x x = 6,00,000 / 1.5 = 4,00,000 (C.L.) Other Current Liabilities = Current Liabilities – Bank Overdraft (Creditors) = 4,00,000 – 1,00,000 = 3,00,000 Current Assets = 2.5 x 4,00,000 = 10,00,000 (ii) Liquid Ratio = Liquid Assets / Current Liabilities 1.5 = Liquid Assets / 4,00,000 Liquid assets = 6,00,000 Liquid assets = Current Assets - Stock 6,00,000 = 10,00,000 – Stock So, Stock = 4,00,000 (iii) Calculation of fixed assets: Fixed assets to proprietary fund is 0.75, working capital is therefore 0.25 of proprietary fund. So, Fixed Assets = 6,00,000 / 0.25 x 0.75 = 18,00,000 (iv) Sales = (14,40,000 / 80) × 100 = 18,00,000 (v) Debtors = 2/12 x Sales 2/12 × 18,00,000 = 3,00,000 (vi) Net profit = 15% of 18,00,000 = 2,70,000 Calculation for the year 31st March, 2024 (vii) Sales = 18,00,000 + (18,00,000 × 0.2) = 21,60,000 (viii) Calculation of fixed assets Particulars ₹ To Opening balance 18,00,000 By Banks (Sale) 90,000 By Loss on sales of Fixed asset 90,000 By P & L (Dep.) (5% as in previous year) 81,000 By Balance b/d 15,39,000 Total 18,00,000 18,00,000 (ix) Net profit for the year 2011, 16% × 21,60,000 = 3,45,600 Total Profit = 2,70,000 + 3,45,600 = 6,15,600

Topics: Part-A: Financial Management

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