Financial Accounting
Dec 2024 Examination
Q1. Given the following information of ABC Ltd. as of March 31st:
1. Revenue: Rs. 5,00,000
2. Cost of Goods Sold (COGS): Rs. 3,00,000
3. Operating Expenses: Rs. 80,000
4. Depreciation: Rs. 30,000
5. Tax Rate: 30%
Prepare the Income Statement and calculate the Net Profit after Tax. Additionally,
evaluate how the inclusion of non-cash items like depreciation affects the financial
position of the company, and discuss its significance in decision-making for stakeholders.
(10 Marks)
Ans 1.
Introduction
An Income Statement, also known as a Profit and Loss (P&L) Statement, is a key financial
document that summarizes a company’s revenues, expenses, and profits over a specific period.
It serves as a critical tool for stakeholders, such as investors and creditors, to assess the
company’s profitability and financial health. For ABC Ltd., the provided data will be used to
construct an Income Statement for the financial year ending March 31st. Additionally, we will
calculate the Net Profit after Tax to determine the company’s earnings performance.
A unique aspect of this analysis includes the impact of non-cash items, such as depreciation.
Although depreciation does not represent an actual cash outflow, it affects net income and
It is only half solved
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Q2A. Compare and contrast the role of journal entries and ledger accounts in the
accounting process. How does the relationship between these two elements ensure
accurate financial reporting? Support your answer with examples. (5 Marks)
Ans 1.
Introduction
In financial accounting, journal entries and ledger accounts are fundamental components that
form the backbone of the accounting process. Journal entries record business transactions in a
chronological manner, while ledger accounts categorize and summarize these transactions
based on specific accounts (e.g., cash, sales). Together, they provide a clear and structured
method to track a company’s financial activities, ensuring accurate and complete financial
reporting. Let’s explore their roles, differences, and how they work together to maintain the int
Q2B. Analyze how changes in accounting policies, such as revenue recognition, can alter
the interpretation of a corporation’s financial performance and position. Discuss the
potential implications for investors and creditors using real-life corporate examples. (5
Marks)
Ans 2b.
Introduction
Accounting policies, like revenue recognition, play a critical role in presenting a company’s
financial performance and position. Changes in these policies can significantly affect how
income, expenses, and profits are reported, influencing stakeholders’ perception of a company’s
financial health. Revenue recognition determines when and how revenue is recorded, and any
changes can alter reported earnings. Investors, creditors, and other stakeholders rely on