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IQRA UNIVERSITY, QUETTAANALYSIS OF FINANCIAL STATEMENTS

MOCK PAPER

Q. Waqar Fans (Pvt.) Limited manufactures fans and sells in open market. As per estimates,

per fan manufacturing cost includes Direct Material of Rs. 1000/-, Direct Labor of Rs.

500/- and variable Factory overhead of Rs. 300/-. Waqar Fans (Pvt.) Limited is havingFixed Factory Overhead of Rs. 3 Million per year. During the 2009 - 10, Waqar Fans

manufactured 15,000 fans and sold 8000 fans @ Rs. 3200/- per fan. During the year

under review Admin & Selling expenses (excluding FFOH) were Rs. 5 Million.Prevailing corporate Tax rate in the country is 35%.

Required:

i. Prepare Income Statement and Balance Sheet for the year 2009-10, usinga) Absorption Costing

b) Marginal Costing

ii. Assuming NIL production during the year 2010 11 and sales of all the

left over fans (7000 in number) prepare Income Statement & BalanceSheet for the year 2010 11, with the same assumptions.

iii. Perform Vertical / Common Size analysis of Income Statement for the

year 2009-10 and comment on NP Ratio if Industry Average is 40%.iv. What was the amount of Deferred Tax during the year 2009-10?

v. Mention the situations in which Waqar Fans would like to opt for

Absorption Costing.vi. Mention the situations in which Waqar Fans would like to opt for

Marginal Costing.

vii. Are there any ratios that may be affected with the change in Costing

Method?

Q3. Imran Fabrics (Pvt.) Limited had purchased locally manufactured new machinery costing

Rs. 5 Millions during the year 2005. Expected useful life of Machine was 5 years. After 5years of usage the machine was sold at Rs 2,218,527/-. The company had adopted

Straight Line Method for calculating depreciation. However in compliance with Tax

Laws of Pakistan the financial statements for the purpose of taxation had been prepared

using Written Down Value Method at the rate of 15% per annum.

Required:

i. Prepare Depreciation Schedules for the year 2005 2009, using both

methods (mentioned above) in the following format.

S. No Year Starting Book

Value

Depreciation

During the year

Ending Book

Value

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ii. Taking GP at Rs. 5 Million, Tax Rate 35% and All other P&L expense(excluding depreciation) at Rs. 3 Million, prepare Income Statements and

Balance Sheets for the years 2005 2009.

iii. Discuss the year wise Tax Impact / Deferred Taxes.iv. Ignoring useful life of machinery, perform trend analysis graphically on

Net Profit and predict NP for the year 2010.

v. List the situations in which

a) The Company would like to opt Straight Line Method

b) The Company would opt WDV for computing depreciation.

Q: Following is a comparison of the affairs of Habib Pvt. Ltd. and Ahmed Karim Pvt. Ltd. as on 30-

06-2010.

Balance Sheet (Rs. Million)

COMPANY Habib Pvt Ltd Ahmed Karim Pvt. Ltd

Cash & Equivalent* 4,102.0 4,165.0

Receivables* 3,438.0 3,723.0

Inventories* 1,697.0 1,293.0

Other Cur Assets 6,630.0 4,503.0

Total Cur Assets 15,867.0 13,684.0

Gross Fixed Assets 18,127.0 14,262.0

Accumulated Depreciation 7,461.0 5,775.0

Net Fixed Assets 10,666.0 8,487.0

Other Non-Cur Asset 2,347.0 1,564.0

Tot Non-Cur Asset 13,013.0 10,051.0

Total Assets 28,880.0 23,735.0

Accounts Payable* 1,407.0 969.0

Short-Term Debt 322.0 389.0

Other Cur Liabilities 4,291.0 3,505.0

Total Cur Liabilities* 6,020.0 4,863.0

Long-Term Debt 448.0 728.0

Deferred Taxes 1,076.0 997.0

Other Non-Cur Liabilities 2,041.0 275.0

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Tot Non-Cur Liabilities 3,565.0 2,000.0

Total Liabilities 9,585.0 6,863.0

Preferred Equity 0.0 0.0

Common Equity* 19,295.0 16,872.0

Retained Earnings* 15,984.0 13,975.0

Total Equity 19,295.0 16,872.0

Tot Liab & SH Equity 28,880.0 23,735.0

Income Statement (Rs. Millions)

COMPANY Habib Pvt Ltd Ahmed Karim Pvt. Ltd

Revenues/Sales 25,070.0 20,847.0

Cost of Sales* 7,753.0 7,276.0

Gross Operating Profit 17,317.0 13,571.0

S&A Expenses* 5,238.0 4,130.0

Op Prof before Depreciation 12,079.0 9,441.0

Depreciation & Amortization 2,192.0 1,888.0

Op Income after Depreciation 9,887.0 7,553.0

Other Income 799.0 406.0

EBIT 10,686.0 7,959.0

Interest Expense* 27.0 25.0

Pretax Income 10,659.0 7,934.0

Income Taxes 3,714.0 2,777.0

Total Net Income 6,945.0 5,157.0

Preferred Div 0.0 0.0

Net Income (for Common SH) 6,945.0 5,157.0

Required: a. Perform Common Size Analysis for the aforementioned TEN rows

shown in italic (marked with *) and comment on the results /

percentages.

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Q2. XYZ (Pvt.) Limited manufactures fans and sells in open market. As perestimates, per fan manufacturing cost includes Direct Material of Rs.500/-, Direct Labor of Rs. 200/- and variable Factory overhead of Rs.100/-. XYZ (Pvt.) Limited is having Fixed Factory Overhead of Rs. 1Million per year. During the 2009 - 10, the company manufactured

25,000 fans and sold 18000 fans @ Rs. 2200/- per fan. During the yearunder review Admin & Selling expenses (excluding FFOH) were Rs. 3Million. Prevailing corporate Tax rate in the country is 35%.

Required:

viii. Prepare Income Statement and Balance Sheet for the year2009-10, using

a) Absorption Costingb) Marginal Costing

ix. Assuming NIL production during the year 2010 11 andsales of all the left over fans (7000 in number) prepareIncome Statement & Balance Sheet for the year 2010 11,with the same assumptions.

x. What was the amount of Deferred Tax during the year2009-10?

xi. Are there any ratios that may be affected with the changein Costing Method?

xii. Perform Vertical / Common Size Analysis and comment.

Q3. KK (Pvt.) Limited purchased new machinery costing Rs. 2 Millions

during the year 2005. Expected useful life of Machine was 5 years.After 5 years of usage the machine was sold at Rs 887,410/-. Thecompany had adopted Straight Line Method for calculatingdepreciation. However in compliance with Tax Laws of Pakistan thefinancial statements for the purpose of taxation had been preparedusing Written Down Value Method at the rate of 15% per annum.

Required:

vi. Prepare Depreciation Schedules for the year 2005 2009,using both methods (mentioned above) in the following

format.

Year StartingBook Value

DepreciationDuring theyear

EndingBookValue

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vii. Taking GP at Rs. 2 Million, Tax Rate 35% and All other P&Lexpense (excluding depreciation) at Rs. .8 Million, prepareIncome Statements and Balance Sheets for the years 2005 2009.

viii. Discuss the Tax Impact / Deferred Taxes.

ix. Perform Horizontal / Trend Analysis and predict NP for theyear 2010.x. List the situations in which

c) The Company would like to opt Straight LineMethod

d) The Company would opt WDV for computingdepreciation.