Description

Financial Accounting & Analysis

September 2024 Examination

 

 

Q1. Company ABC, a manufacturing company, is preparing its cash flow statement forthe fiscal year ending December 31, 2023. The company experienced various cash inflows and outflows during the year from its operating, investing, and financing activities. Based on the provided data, calculate the net cash provided by operating activities, investing activities, and financing activities for Company ABC for the fiscal year ending December 31, 2023. Additionally, determine the net increase or decrease incash and cash equivalents for the period.

	Category			Amount (₹)
Net Income			₹500,000
Depreciation Expense			₹100,000
Increase in Accounts Receivable			₹50,000
Decrease in Inventory			(₹30,000)
Increase in Accounts Payable			₹20,000
Purchase of Property, Plant, and   Equipment			(₹200,000)
Proceeds from Issuance of Long-term   Debt			₹300,000
Repayment of Long-term Debt			(₹150,000)
Payment of Dividends			(₹50,000)
Beginning Cash and Cash Equivalents			₹400,000

 

Instructions:

 

1. Calculate the net cash provided by operating activities using the indirect method.
2. Determine the net cash used in investing activities.
3. Determine the net cash provided by financing activities.
4. Calculate the net increase or decrease in cash and cash equivalents.
5. Provide the final cash flow statement for Company ABC for the fiscal year ending December 31, 2023, showing the net cash provided by (or used in) each category and the net increase or decrease in cash and cash equivalents.

Note: Assume all transactions are cash transactions unless otherwise specified and use the indirect method for operating activities.   (10 Marks)

Ans 1.

Introduction

The cash flow statement is an essential financial document that provides detailed insights into the cash inflows and outflows of a company over a specific period. For Company ABC, a manufacturing firm, the statement for the fiscal year ending December 31, 2023, is crucial for understanding its liquidity and financial health. The statement categorizes cash flows into operating, investing, and financing activities, each reflecting different aspects of the company’s financial operations. Operating activities relate to the core business functions, investing activities indicate cash spent or received from investments in assets, and financing activities show the flow from transactions with investors and creditors. This analysis will

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Q2. DEF Pvt. Ltd. is considering introducing a new product line. Conduct a cost- volume- profit (CVP) analysis on hypothetical data (per unit basis) to determine the breakeven point and assess the profitability of the new product. Discuss the implications of your analysis on the company’s decision-making process. (You can present the answer with the help of hypothetical data if required)   (10 Marks)

Ans 2.

Introduction

Cost-Volume-Profit (CVP) analysis is a crucial managerial accounting tool that helps companies understand the interrelationships between cost, volume, and profit. This analysis is particularly vital when a company, such as DEF Pvt. Ltd., considers introducing a new product line. By using CVP analysis, DEF Pvt. Ltd. can calculate the breakeven point, which is the level of sales at which the company neither makes a profit nor incurs a loss. This analysis also aids in understanding the behavior of costs and the impact of various levels of production and pricing on profitability. The decision to launch a new product can

 

Q3.(A) Compare and contrast ratio analysis with other techniques of financial analysis. Provide examples of situations where each technique would be most appropriate and discuss the insights, they offer to stakeholders in assessing a company’s financial performance and position.    (5 Marks)

Ans 3a.

Introduction

Financial analysis is a cornerstone of corporate finance, aimed at assessing a company’s viability, stability, and profitability. Among various techniques employed, ratio analysis stands out for its simplicity and effectiveness. This essay compares ratio analysis with other financial analysis techniques such as cash flow analysis and common size statements. By understanding the unique contributions and limitations of each method, stakeholders can gain a more comprehensive view of a company’s financial health. Examples of specific contexts

 

(B) You are a newly appointed financial analyst at a manufacturing company, tasked with preparing the balance sheet for the fiscal year ending December 31, 2023. As part of your role, you need to identify and explain the basic concepts underlying the preparation of the balance sheet. Additionally, you are required to discuss the key components of a balance sheet and their role in portraying the financial position of a company.     (5 Marks)

Ans 3b.

Introduction

As a newly appointed financial analyst in a manufacturing company, preparing an accurate balance sheet for the fiscal year is a crucial responsibility. The balance sheet is a fundamental financial statement that provides a snapshot of a company’s financial position at a specific point in time. It reflects the company’s assets, liabilities, and shareholders’ equity, which collectively portray its financial health. Understanding the underlying concepts and key