Financial Statement Analysis

The assignment presents a balance sheet for a company in 2017. It outlines the company's financial position by categorizing its assets into current and non-current, and liabilities into current and non-current. The balance sheet also includes stockholders' equity, reflecting the company's capital and profit earned during the period. This example is useful for understanding the structure and components of a balance sheet in accounting.

Answer Q1.
Balance sheet equation or accounting equation is foundation of double accounting system. The
accounting equation shows that all the assets are either financed by borrowing money or paying with
the money of the company’s shareholders. Thus the Accounting equation is: Assets = Liabilities +
Shareholder Equity. Thus it represents the relationship between the assets, liabilities and owner’s
equity of a business. The every transaction, the total debits are equal to the total credits.
Si
No Period Assets
(EURO) =
Liabiliti
es
(EURO)
+
Share
Holder
Equity
(EURO)
Total Remarks
1.1
January 1, Year
1
300,
000 -
30
0,000
300,00
0 Share Issued
1.2
January 20,
Year 1
35,
000
35,
000 -
35,0
00
Purchase of Fixed assets, and
50%
paid though cash and 50% paid
though Bank loan
1.3
March 10, Year
1
15,
000
15,
000 -
15,0
00
Purchase of Finished goods,
50% paid via bank and other
on account
1.4
March 30, Year
1
(30,0
00) -
(30
,000)
(30,00
0) Salary Paid
1.5 July 1, Year 1
12,
000 -
12
,000
12,0
00 Rent income for 6 month
1.6
August 31,
Year 1
470,
000 -
47
0,000
470,00
0
Finished goods sold for EURO
500,000/-
1.6
September 31,
Year 1 - - - - Receipt of cash from Debtors
1.7
October 30,
Year 1
(50,0
00)
(50,0
00) -
(50,00
0)
Cash collected and also paid to
Vendor
1.8
December 30,
Year 1
(11,6
67) -
(11
,667)
(11,66
7)
Depreciation charged on fixed
Assets
1.9
December 30,
Year 1
(50,0
00) -
(50
,000)
(50,00
0)
Travelling expenses Paid for
month
of December
1.1
0
December 30,
Year 1
(150,
000) -
(150
,000)
(150,00
0) Dividend Paid
Total
540,
333 -
54
0,333
540,33
3
Working Note
Calculation of Depreciation
Description value Life Depreciation
Building 50000 5 10000
Equipment 20000 3 6667
Total 70000 16667

Answer Q. 2
2.1 Yes, there are errors in the given trial balance. After going through the stated trail balance we found
that “Other revenue account”, “shorter loan” and “creditor account” (assuming that there is no any
advance payment) are showing debit balance in place of credit Balance. Impact of these accounts have
been recorded and rectified as per T-Accounting. We have also tried to show the impact on
corresponding account.
Other Revenue Debtors
Debit Credit Debit Credit
Particular
s Amt Particulars Amt Particulars Amt
Particular
s
Am
t
As per
Trial
1000
0
Need to be
credited
2000
0 As per Trial 50000
(doubel impact) Need to be debited by 20000
Bal
1000
0 Bal 70000 Bal 0
short term loan Cash
Debit Credit Debit Credit
Particular
s Amt Particulars Amt Particulars Amt
Particular
s
Am
t
As per
Trial
1000
0
Need to be
credited
2000
0 As per Trial 5000
(doubel impact) Need to be debited by 20000
Bal
1000
0 Bal 25000 Bal 0
Creditors Purchase
Debit Credit Debit Credit
Particular
s Amt Particulars Amt Particulars Amt
Particular
s
Am
t
As per
Trial
3000
0
Neet to be
credited
6000
0 As per Trial
15000
0
(doubel impact) Need to be debited by 60000
Bal
3000
0 Bal
21000
0 Bal 0

1. “Other revenue account” was debited in “trial balance” though it should have credit balance.
Therefore “other revenue account” is credited by 20,000/- and “debtor account” is debited by
20,000/-. Now Balance (ie. Credit) of other revenue account is 10,000/- and balance (debit) of
debtor account is 70,000/-.
2. “Short term loan account” was debited in “trial balance” though it should have credit balance.
Therefore, “Short term loan account” is credited by 20,000 and “cash account” is debited by 20,000.
Now Credit Balance of Short term loan account is 10,000 and Debit balance of “cash account” is
25000.
3. “Creditor account” was debited in “trial balance” though it should have credit balance. Therefore,
“creditor account” is credited with 60,000 and purchase account is debited by Rs. 60,000. Now
Credit balance of creditors account is 30,000 and Debit balance of purchase account is 210,000.

2.2 Rectification entry passed as per T accounting i.e Debtor account is debited and Sales account is
credited with EURO 10,000/-
Sales Account Debtors
Debit Credit Debit Credit
Particulars Amt Particulars Amt Particulars Amt Particulars Amt
Detors 10000 Sales 10000
Bal 10000 Bal 10000 Bal
Sales account is increased by 10,000 simultaneously debtors account is also increased by 10,000/-
2.3 Rectification entry passed as per T accounting ie. Debtor account is debited and account payable
account is credited with EURO 5000/-
Account Payable Account Debtors
Debit Credit Debit Credit
Particulars Amt Particulars Amt Particulars Amt Particulars Amt
Debtors 5000 Account Payable 5000
Bal 0 Bal 5000 Bal 5000 Bal
Account payable is increased by 5000/- and debtors account is also increased by 5000/-
2.4 Rectification entry passed as per T accounting i.e maintenance cost is credited and Assets tool is
debited with EURO 5000/-
Maintenance Cost Assets Tool
Debit Credit Debit Credit
Particulars Amt Particulars Amt Particulars Amt Particulars Amt
Asses Tools 5000 Maintenance cost 5000
Bal 0 Bal 5000 Bal 5000 Bal
Maintenance cost is deducted by 5000/- and Assets tools account is increased by 5000/-. Now balance
of maintenance cost account is decreased by 5000/- and balance of Assets tools increased by 5000/-

2.5 Rectification entry passed by debiting the Google account and crediting Apple account with EURO
3500/-
Google Account Apple Account
Debit Credit Debit Credit
Particulars Amt Particulars Amt Particulars Amt Particulars Amt
Apple 3500 Google 3500
Bal 3500 Bal 0 Bal Bal 3500
Now Google account is increased by 3500/- and apple account is decreased by 3500/-
2.6 Assume the amount of “Endesa” would be EURO 6,000/-. We are assuming that supply was
completed and amount is unknown at the end of month. We passed the entry by debiting “Provision for
Expenses (PL) and Crediting Provision for Expenses (BS) with EURO 6,000/-
Provision for Expense (PL) Provision for Expense (B/s)
Debit Credit Debit Credit
Particulars Amt Particulars Amt Particulars Amt Particulars Amt
Pro for Exp (B/s) 6000 Pro for Exp (P/L) 6000
Bal 6000 Bal 0 Bal Bal 6000
“Provision for expenses (Pl)” account is increased by 6000/- and “provision for expenses (BS)” is also
increased by 6000/-

Answer Q 3
3.1 Tesla is financing the business by following the below mentioned way
1. Equity Financing: it is process of raising fund though sale of shares of enterprises for the business
purposes. It provide voting right to equity shareholders. Under this, shareholder get dividends in
case company made profit. Company has no obligation to pay back the amount to shareholder. It
helps the company to grow fast as it provide extra working capital.
2. Convertible and other Bond: it is process of raising capital though issuing bond. Under this method
bond holders have right to get fixed interest rate. In case of convertible bond, bond holders have
right to exercise the option to get equity share in place of bond. It provides security to investors for
their investment made in an enterprises. It is issued to lowering the borrowing cost of the company.
3. Borrowing: it is process of raising capital though Bank, financial institution and other. Company has
to pay fixed interest rate on the borrowing amount. It is raised for short period of time.
4. Stock Option: it is process of raising the capital thought issue of “stock Option”. It give right to stock
holder to exercise or not to exercise the option after certain period of time. It provides privilege to
the buyer to buy or sell a stock at agreed price within a certain period of time. There are two type of
stock option, one is called “call Option” and another is called “Put Option”. An option is considered
as a call option when a buyer enters into a contract to purchase a stock at a specified price by a
specified date. An Option is considered as a put option when the option buyer takes out a contract
to sell a stock at an agreed on price on or before specified date.
5. Issue of Warrants: it is process of raising the capital through issue of warrants. Warrants is a
derivatives that confer the right, but not the obligation, to buy or sell the security at a certain price
before expiration. The price at which the underlying security can be bought or sold is referred to as
the exercise price or strike price. An American warrant can be exercised at any time on or before the
expiration date, while European warrants can only be exercised on the expiration date. Warrants
that confer the right to buy a security are known as call warrants; those that confer the right to sell
are known as put option.
6. Proceed from subsidiary company: it is also way of raising fund in place of leaving controlling right in
subsidiary company.
7. Convertible note: A convertible note is a form of short term debt which converts into equity. The
inventor will provide money to startup and instead of a return in the form of Principal plus interest,
the investor would receive equity in the company. The primary advantage of issuing convertible
notes is that it does not force the issuer and investors to determine the value of the company when
there really might not be much to base a valuation on - in some cases the company may just be an
idea.

Fund raised by company from above mentioned war are as follows:
Particulars Amount
Proceeds from issuance of Common Stock in public offering 400175
Proceeds from issuance of Convertible and other debts 5401158
Collaterised lease borrowings 416427
Proceeds from exercise of stock options and other Stock Issuance 239328
Proceeds from settlement of convertible note hedges 269456
Proceeds from issuance of warrants 52883
Proceeds from investment by non-controlling interest in subsidiary 691918
Total 7471345

3.2.
Yes, Tesla is having loss during the accounting period. After going through the profit and loss account,
we found that the top line i.e. revenue has gone up by around 30% during the Quarter whereas 80%
during the period of nine month in-comparison with previous year. However total cost of revenue has
also gone up by 30% during the quarter and 80% during the period of nine month. Consequently
decrease in gross profit from 28% to 15% during the quarter and 21% from 25% during the period of
nine month. Indirect expenses has also been increased during the accounting period in-comparison of
previous year. Consequently net profit of company decreases as -22% from 1% during the quarter and
losses increases from 12% to 17%. Details are as per table given below.
Particulars Three Months Ended September 30, Nine Months Ended September
30,
2017 2016 2017 2016
Total revenues 2,984,675 2,298,436 8,470,502 4,715,501
% of Previous
Revenue 30% 80%
Total cost of
revenues
2,535,535 1,661,701 6,686,801 3,551,522
% of Previous
Expenses 53% 88%
Gross profit 449,140 636,735 1,783,701 1,163,979
% of Sales 15% 28% 21% 25%
Net (loss) income (671,163) 21,878 (1,469,771) (553,577)
% of Sales -22% 1% -17% -12%

3.3
After going though Profit and loss account. We found that most important cost of Tesla is “Energy
generation and storage expenses “and “Service and other expenses”’. We found that energy generation
and storage expenses increased by 6 % of revenue and service and other expenses increased by 4% of
revenue. Therefore, there is leverage in the both expenses and company must concentrate to control
the expenses under both head to become profitable enterprises.
Likewise the most important expense of company is operating expenses, we found that operating
expenses is 33% of revenue in both year. Percentage of Operating expenses must be decreased on
ground of increase in revenue. Revenue is increased by 80% in-comparison of previous period, however
operating expenses is still same i.e. 33%. Therefore company can found leverage in operating expenses
to become a profitable enterprises. Percentage of Operating Expenses must be go down because there
is not direct relation between sales revenue and operating cost.
Detail of Important expenses are as follows:
Particulars Nine Months Ended September 30,
2017 % 2016 %
Total revenues 8,470,502 4,715,501
Cost of revenues
Automotive sales 4,724,849 56% 2,895,483 61%
Automotive leasing 516,683 6% 310,176 7%
Energy generation and storage 592,823 7% 50,553 1%
Services and other 852,446 10% 295,310 6%
Operating Expenses
Research and development 1,023,436 12% 588,448 12%
Selling, general and administrative 1,794,210 21% 976,173 21%

3.4
After going through the balance sheet and cash flow, we found that tesla is paying its bill by generating
the cash from different financial instruments which has already been discussed in point no. 3.1.
Detail are as follows
Particulars Amount
Proceeds from issuance of Common Stock in public offering 400175
Proceeds from issuance of Convertible and other debts 5401158
Collaterised lease borrowings 416427
Proceeds from exercise of stock options and other Stock Issuance 239328
Proceeds from settlement of convertible note hedges 269456
Proceeds from issuance of warrants 52883
Proceeds from investment by non-controlling interest in subsidiary 691918
Total 7471345

Answer Q 4.
4.1 Profit and Loss Account
Profit and loss account
Particulars 2017
Revenues
Sales 3,500.00
Total revenues 3,500.00
Cost of Revenue
Cost of Goods sold 1,500.00
Total Cost of Revenue 1,500.00
Gross Profit 2,000.00
Operating Expenses
Depreciation 336.67
Rent 20.00
Energy, water 24.00
Marketing 150.00
Total Operating Expenses 530.67
Profit/(Loss) from Operation 1,469.33
Interest Expenses 56.00
Profit/(Loss) before tax 1,413.33
Tax, Net -
Profit transferred to Balance sheet 1,413.33

4.2 Balance sheet
Particulars 2017
Current assets
Cash and cash equivalents 500.00
Accounts receivable, net 1,000.00
Inventory 100.00
Total current assets 1,600.00
Non-Current Assets
Building 1,200.00
Less: Accumulated Depreciation 120.00 1,080.00
Equipment 650.00
Less: Accumulated Depreciation 216.67 433.33
Total Non-Current Assets 1,513.33
Total Assets 3,113.33
Liabilities
Current liabilities
Accounts payable 450.00
Short term Loan 500.00
Total current liabilities 950.00
Non-Current Liabilities
Long Term loan 250.00
Total Non - Current Liabilities 250.00
Stockholders' equity
Capital 500.00
Profit and loss during the period 1,413.33
Total stockholders' equity 1,913.33
Total Liabilities and Equity 3,113.33

References
Equity financing on https://www.investopedia.com/terms/e/equityfinancing.asp
Warrant financing on https://www.investopedia.com/terms/w/warrant.asp
Option on https://www.investopedia.com/terms/o/option.asp
Convertible note on https://www.investopedia.com/terms/c/convertiblebond.asp
Accounting equation on https://www.investopedia.com/terms/a/accounting-equation.asp
Accounting equation on https://en.wikipedia.org/wiki/Accounting_equation