Finance Question

This document provides answers to a finance question, covering topics such as journal entries, cash at bank, ratios, and financial statement analysis. It includes multiple-choice questions, written questions with solutions, and discussions on the purpose and importance of ratios in financial analysis.

FINANCE QUESTION

Table of Contents
MULTIPLE CHOICE......................................................................................................................3
Q1................................................................................................................................................3
Q2................................................................................................................................................3
Q3................................................................................................................................................3
Q4................................................................................................................................................3
Q5................................................................................................................................................3
Q6................................................................................................................................................3
Q7................................................................................................................................................3
Q8................................................................................................................................................3
Q9................................................................................................................................................3
Q10..............................................................................................................................................3
WRITTEN QUESTION 1................................................................................................................3
(a)Journal entries for Soda Beverages Limited for the month of January 2020.........................3
(b)Cash at bank T account as at 31/1/20.....................................................................................5
WRITTEN QUESTION 2................................................................................................................5
a...................................................................................................................................................5
b...................................................................................................................................................6
c. Difference among post-closing trial balance and adjusted trial balance.................................6
QUESTION 3...................................................................................................................................7
(a) The purpose and importance of ratios in analysis of financial statements............................7
(b) Movement of ratios...............................................................................................................7
Profitability:.....................................................................................................................................7

MULTIPLE CHOICE
Q1.
b
Q2.
b
Q3.
c
Q4.
a
Q5.
c
Q6.
c.
Q7.
c.
Q8.
d.
Q9.
d.
Q10.
b
WRITTEN QUESTION 1
(a)Journal entries for Soda Beverages Limited for the month of January 2020
Date Particulars Debit($) Credit($)
01/01/20 Cash A/c Dr
To Share Capital A/c
(Being shares issued to the investors)
100000
100000

02/01/20 Equipment A/c Dr
To Clarkes Equipment A/c
(Being Equipment Purchased on credit From
Clarkes Equipment)
25000
25000
07/01/20 office supplies A/c Dr
To Cash A/c
(Being Office supplies purchased in cash)
1500
1500
10/01/20 Purchase A/c Dr
To Cash a/c
(Being Raw material Purchased in cash)
7000
7000
11/01/20 wages A/c Dr
To cash a/c
(being wages paid in cash)
3100
3100
15/01/20 Customers A/c Dr
To sales A/c
(being goods sold on credit and invoiced
generated)
12000
12000
20/01/20 Clarkes A/c Dr
To cash A/c
(being half amount paid to its Creditors)
12500
12500
25/01/20 Cash A/c Dr
To Customers A/c
(being cash received from its customers)
8000
8000
28/01/20 Prepaid insurance A/c Dr
To cash A/c
(being Prepaid insurance expenses paid in
Advance)
3000
3000
30/01/20 Cash A/c Dr 10000

To Retailers Advance a/c
(Being cash received In advance from a retailer
for an order to be delivered on February)
10000
(b)Cash at bank T account as at 31/1/20
Cash at bank A/c
Date Particular Amount($) Date Particular Amount($)
01/01/20 To share Capital a/c 100000 07/01/20 By Office supplies
A/c
1500
25/01/20 To customer A/c 8000 10/01/20 By Purchase A/c 7000
30/01/20 To Retailers
Advance A/c
10000 11/01/20 By Wages a/c 3100
20/01/20 By Clarkes A/c 12500
28/01/20 By Prepaid Insurance
a/c
3000
30/01/20 By Balance C/d 90900
1,18,000 1,18,000
01/02/20 To balance B/d 90900
WRITTEN QUESTION 2
a.
Date Account Debit Credit
30/06/20 Service Revenue 170000
Other income 11200
To Profit & Loss a/c 181200

30/06/20 Profit & Loss A/c 142700
To Depreciation
expenses
4500
To Interest Expense 2800
To Rent expense 18000
To Supplies expense 500
To Utility expense 14900
To wages expense 102000
30/06/20 Profit & Loss A/c 38500
To Retained earnings 38500
30/06/20 Retained Earnings 13000
To dividend paid 13000
b.
Opening retained balance = 10000
Add: Retained earnings as at 30 June 2020 = 38500
Less: Dividend paid = 13000
Closing balance as at 30 June 2020 = 35500
c. Difference among post-closing trial balance and adjusted trial balance
The major difference between the post-closing trial balance and the adjusted trial balance
is that in the adjusted trial balance the nominal and real accounts come. On the other side in the
post-closing trial balance only the real accounts due to the reason that the nominal accounts are
being closed at time of preparing the final statements. Another major difference is that adjusted
trial balance is made in order to show the adjusted value after making the adjustment entries. In
against of this post closing trial balance is used in order to depict the finalized balances of
permanent account before the start of new accounting period.

QUESTION 3
(a) The purpose and importance of ratios in analysis of financial statements
The main purpose of Ratio analysis is to identify profitability, liquidity. Efficiency and solvency
of the business. It helps in comparison of one firm to another and easily find our differences in
financial statements. It is very difficult to compare any industry whose having same assets and
same capital structure with another the reason behind that is on what basis the data are calculated
and identified which firm is best. So ratio analysis helps in identifying the firm’s suitability for
investment purpose. Ratio analysis Helps in compare current performance of business with
previous records so it helps in sustain good financial position of the firm. This ratio helps in
monitoring and identifying issues that can be highlighted and resolved. further ratios assist in
decision making. Overall financial health is calculated by calculating this ratio. It simplifies
complex accounting statement and financial data into simplest form. This ratios also identified
problems and brings attention to the management in that areas which are necessary to change.
(b) Movement of ratios
Profitability:
Soni limited company is a manufacturing company which deals in electronic items. The
company shows return on assets ratio for the end of June 2019 is 11% and it declines in the year
2020 June by 7.5% . ROA indicates that what earning the firm generated from investment in
capital. higher The ROA higher the Return. Falling ROA reflected that the company over
invested in assets and that does not produce higher returns from the investment. The competitors
Return on assets is 15% which is good as compared to Soni limited. So firm have to withdraw
some amount from assets and invested that amount in any profitable portfolio
Soni limited shows a profit margin in June 2019 is 13% while profit increases in the year
2020 by 0.5% which is good for the company. It shows firms have lower cost of production and
it will generate higher revenue. A higher profit margin ratio is always desirable for the company
because it interprate that firm generates more profit from its sales. The Competitor Firms Profit
margin ratio is only 9%, so it display Soni limited is more profitable firm.
Liquidity:

Soni limited company shows that companies current ratio in the year end June 2019 is
1.7:1 and it was increased from previous year to 2.1:a which means form have enough assets to
pay off its current short term obligations. while the competitor’s current ratio is 1.6:1 which
defines that competitor firm have lower current assets to pay its liabilities. Soni limited is
operating with good liquidity.
Solvency:
The company have 85% assets to pay its debt in June 2019 but it will have increased for
the year end June 2020 by 5% so it is analysed from this data is firm have enough cash to pay off
its liabilities on time. On the other side firm's competitor firm have only 70% assets available for
pay off its liabilities which is lower than the Soni limited company. So our firm have high
solvency ratios.