Financial Accounting & Analysis JUNE 2025

Description

Financial Accounting & Analysis

Jun 2025 Examination

 

 

Q1. A small manufacturing company, Horizon Industries, has experienced rapid growth and needs to organize its accounting records. The company currently tracks transactions informally using spreadsheets. The owner has hired you as a consultant to implement proper accounting procedures. Describe the sequential steps Horizon

Industries should follow to establish a formal accounting system. Explain the    purpose and role in generating financial statements. Additionally, identify which source documents should be maintained for different types of transactions. (10 Marks)

Ans 1.

Introduction

As Horizon Industries experiences rapid growth, the need for a structured and formal accounting system becomes essential to ensure accurate financial reporting, compliance, and better decision-making. Informal tracking through spreadsheets may suffice in early stages, but as transactions increase in volume and complexity, a standardized accounting process is necessary to maintain transparency and control. A formal accounting system enables the company to systematically record, classify, and summarize financial data that supports internal analysis and

 

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Q2. Meera Sharma recently decided to pursue her passion for landscaping by starting Green Valley Landscaping Services in Pune, Maharashtra. After years of working for a large landscaping company, she’s using her expertise and savings to establish her own business in a growing residential area. The company offers residential and commercial landscaping services including lawn maintenance, garden design, irrigation system installation, and seasonal clean-up. Meera has rented a small office space with an attached storage area for equipment and supplies near Koregaon Park. As she begins operations, she needs to properly track all business transactions to understand her financial position and plan for future growth.

Explain the accounting equation and its fundamental importance in financial accounting. Analyze the following six transactions for Green Valley Landscaping Services and show how each affects the accounting equation:

1. Meera invested Rs.15,00,000 cash to start the business
2. Purchased equipment worth Rs.5,00,000, paying Rs.2,00,000 in cash and financing the remainder
3. Provided landscaping services for Rs.2,75,000, receiving cash immediately
4. Paid Rs.75,000 for monthly rent
5. Purchased supplies for Rs.45,000 on account from Ganesh Garden Supplies
6. Paid Rs.30,000 toward the equipment loan to State Bank of India (10 Marks)

Ans 2.

Introduction

Financial accounting provides a systematic approach to tracking a business’s financial health. At its core lies the accounting equation, which represents the fundamental relationship among a company’s assets, liabilities, and owner’s equity. Meera Sharma, founder of Green Valley Landscaping Services in Pune, must understand how every transaction affects this equation to ensure accurate financial reporting. As she begins operations, maintaining clarity on how assets are funded—either by

 

 

Q3 (A) Vindhya Technologies Ltd, a mid-sized software development company based in Bangalore, specializes in enterprise solutions and mobile applications. Below are selected items from the company’s financial statements for the years ended March 31, 2024 and 2023 (all figures in Rs. lakhs):

Balance Sheet Items:

– Current Assets (2024): Rs.480; (2023): Rs.360

– Cash and Cash Equivalents (2024): Rs.180; (2023): Rs.140

– Current Liabilities (2024): Rs.220; (2023): Rs.190

– Total Assets (2024): Rs.1,200; (2023): Rs.950

– Total Liabilities (2024): Rs.500; (2023): Rs.400

– Inventory (2024): Rs.60; (2023): Rs.45

Income Statement Items:

– Net Sales (2024): Rs.1,500; (2023): Rs.1,250

– Net Profit After Tax (2024): Rs.225; (2023): Rs.170

– Cost of Goods Sold (2024): Rs.900; (2023): Rs.780

Additional Information:

– Average Total Assets for 2024: Rs.1,075

– Average Inventory for 2024: Rs.52.5

– Shareholders’ Equity (2024): Rs.700; (2023): Rs.550

Analyze Vindhya Technologies Ltd’s financial performance by calculating and interpreting the Profitability and Liquidity    categories of financial ratios.    Calculate and interpret two ratios for each category. (5 Marks)

Ans 3a.

Introduction

To assess the financial performance of Vindhya Technologies Ltd for the year ending March 31, 2024, it is crucial to evaluate two major categories of financial ratios—profitability and liquidity. Profitability ratios indicate how well the company generates earnings relative to its sales and assets, while liquidity ratios assess its short-term financial health and ability to meet current obligations. By

 

 

Q3(B) Analyze Vindhya Technologies Ltd’s financial performance by calculating and interpreting the Solvency and Efficiency    categories of financial ratios. Calculate and interpret two ratios for each category. (5 Marks)

Ans 3b.

Introduction

To gain a comprehensive view of Vindhya Technologies Ltd’s financial stability and operational effectiveness, it is important to examine its solvency and efficiency ratios. Solvency ratios indicate the company’s long-term ability to meet debt obligations, while efficiency ratios reveal how effectively it uses assets and resources. These ratios, calculated using financial data for the year ending March 31, 2024, help evaluate whether the company is maintaining financial discipline and