Financial Accounting Introduction 3 Exercises

Cash outflow and inflow- Financing Activities treasury shares- (13,200.00) Payment of Cash dividend (36,000.00) Issue of bonds at par 60,000.00 Cash outflow and inflow- Financing (C): 10,800,000.00 Net increase in cash & cash equivalents (A+B+C) 96,600,000.00 Add: Cash balance as on 31st December 2018 100,000.00 Cash balance as on 31st December 2019 196,600.00 Question 2 Calculation of Equity Return Particulars Amount A. Amount Authorized Share Capital

Financial Accounting

Table of Contents
Introduction......................................................................................................................................3
Exercise 1.........................................................................................................................................3
Question 1....................................................................................................................................3
Question 2....................................................................................................................................4
Exercise 2.........................................................................................................................................4
Question 1....................................................................................................................................4
Question 2....................................................................................................................................6
Question 3....................................................................................................................................6
Exercise 3.........................................................................................................................................7
Question 1....................................................................................................................................7
Question 2....................................................................................................................................8
Question 3....................................................................................................................................9
Analysis...........................................................................................................................................9

Introduction
In this assignment different type’s statement has to be prepared such as statement of cash
outflow and cash inflow, statement of equity return, statement showing the equity section. The
analysis of this statement has also been carried out in this assignment. Different calculation has
been done such as calculation of basic EPS and diluted EPS. The impact of the short term and
long term investment has also been analyzed in this assignment.
Exercise 1
Question 1
XYZ Corporation
Statement of Cash outflow and inflow
For the Year 2019
Indirect Method
Particulars Amount
A. Cash outflow and inflow- Operating
Net Profit 66,000.00
Add/Less: Adjustments to reconcile net profit
Depreciation-building 4,800.00
Depreciation-equipment 10,800.00
Patent amortization 3,000.00
Loss on disposal of equipment 2,400.00
Add/Less: Changes- current liabilities and current assets
Increase-current assets 34,800.00
Increase-current liabilities (15,600.00)
Cash outflow & inflow-Operating (A): 106,200.00
B. Cash outflow and inflow-Investing
Addition to building (32,400.00)
Disposal of equipment 12,000.00
Cash outflow and inflow -Investing (B): (20,400.00)

C. Cash outflow and inflow-Financing Activities
treasury shares-purchase (13,200.00)
Payment of Cash dividend (36,000.00)
Issue of bonds at par 60,000.00
Cash outflow and inflow- Financing (C): 10,800.00
Net increase in cash & cash equivalents (A+B+C) 96,600.00
Add: Cash balance as on 31st December 2018 100,000.00
Cash balance as on 31st December 2019 196,600.00
Question 2
Calculation of Equity Return
Particulars Amount
A. Net Profit 66,000.00
B. Share Capital 216,000.00
C. Retained Earnings 52,800.00
D. Shareholders' Equity 268,800.00
E. Equity Return (A/D) 0.25
Exercise 2
Question 1
ABC
Statement Showing Equity Section
As On 31st December, 2018

Particulars Note
No. Amount
Authorized Share Capital
320,000 Ordinary shares of 1 par value 320,000.00
Issued and Paid-in Capital
220,000 Ordinary shares of 1 par value 1 220,000.00
Additional Paid-in Capital-Ordinary Shares 2 1,610,000.00
Retained Earnings 3 1,334,000.00
Less: Treasury Shares 4 (120,000.00)
3,044,000.00
Note 1: Issued and Paid-in Capital Amount
200,000 Ordinary shares of 1 par value 200,000.00
Add: 10,000 shares distributed as dividend (par value 1) 10,000.00
Add: 10,000 shares issued at 12 per share (par value 1) 10,000.00
220,000.00
Note 2: Additional Paid-in Capital - Ordinary Shares Amount
Balance as on December, 2017 1,400,000.00
Add: Additional paid-in capital in shares distributed as
dividend 100,000.00
Add: Additional paid-in capital in shares issued 110,000.00
1,610,000.00
Note 3: Retained Earnings Amount
Balance as on December, 2017 2,160,000.00
Less: 10,000 shares distributed as dividend at 11 per share (100,000.00)
Less: Purchases 40,000 shares of its own at 12 per share (480,000.00)
Less: Cash dividend paid at 1.5 per share (255,000.00)
Add: Profit on sale of Treasury Shares 24,000.00
Less: Loss on sale of Treasury Shares (15,000.00)
1,334,000.00

Note 4: Treasury Shares Amount
Balance as on December, 2017 -
Add: Purchase 40,000 shares at 12 per share 480,000.00
Less: Sold 24,000 shares at 13 per share (recorded at cost) (288,000.00)
Less: Sold 6,000 shares at 9.5 per share (recorded at cost) (72,000.00)
120,000.00
Question 2
Calculation of Basic EPS
Net Profit in 2018 1,072,000.00
outstanding shares- Weighted average (Numbers) 220,000
EPS for 2018 4.87
Question 3
Determination of Diluted EPS
Net Profit in 2018 1,072,000.00
Add: Convertible Interest 90,000.00
Diluted Earnings (A): 1,162,000.00
outstanding shares- Weighted average (Number) 220,000
Add: No. of shares from conversion of bonds 100,000
outstanding shares (numbers) (B): 320,000
Diluted EPS for 2018 (A/B) 3.63

Exercise 3
Question 1
Husky Co.
Statement of Investments
2018
Particulars Amount
Investments-short term
Investment in shares of Antonio
Purchased 100,000 shares at a price of 40 per share 4,000,000.00
Add: investment- unrealized gain 200,000.00
4,200,000.00
Less: Sold 60,000 shares 2,520,000.00
1,680,000.00
Add: investment-unrealized gain 120,000.00
1,800,000.00
Investment in shares of Paulo
Purchased 200,000 shares at a price of 50 per share 10,000,000.00
Add: investment-unrealized gain 400,000.00
10,400,000.00

Less: Sold 80,000 shares 4,160,000.00
6,240,000.00
Add: investment-Unrealized gain 360,000.00
6,600,000.00
Long-term Investments
Investment in shares of Rodriguez
Purchased 1,000,000 shares at a price of 20 per share 20,000,000.00
Less: decrease in investment because of dividend
received (250,000.00)
Add: share of net profit of 2017 125,000.00
19,875,000.00
Less: decrease in investment because of dividend
received (500,000.00)
Add: Share of net profit of 2018 2,000,000.00
21,375,000.00
Question 2
Impact of Short-term and Long-term (Investment)s
on the Statement of Comprehensive Income
2018
Particulars Amount
Impact of Short-term Investments
Investment Reserve (Unrealized gain on investment) 480,000.00
Profit on sale of investment
Profit on sale of Antonio's shares 120,000.00
Profit on sale of Paulo's shares 240,000.00
Impact of Long-term Investments
Share of Profit of Rodriguez 2,000,000.00

Question 3
Impact of Short-term and Long-term (Investments)
on the Statement of Cash outflow and inflow
2018
Particulars Amount
Cash outflow and inflow-Investing
Disposal of Investment in shares of:
Antonio 2,640,000.00
Paulo 4,400,000.00
Dividend received from Rodriguez 500,000.00
Analysis
Exercise 1
Question 1
After analyzing the cash outflow and inflow of XYZ incorporation it has been found that the net
profit for the year 2019 is 66000 and the depreciation amount on building is 4800 and equipment
the depreciation is 10800. The cash outflow and inflow has been prepared by applying the
indirect method. The amortization amount on patent is 3000 and the amount of loss on the total
disposal of equipment is 2400. The current assets were increased by 34800 and current liabilities
also increased by 15600. The increase in current assets signifies that the current assets of the
business such as debtors, accounts receivables, investment of short term, which are marketable,
cash and its equivalents, have also increased. The increase in debtors signifies that the customers
who purchase the goods or services on credit have been increased. The increase in stock signifies
that the company has purchased additional number of stocks in the current year. The increase in
prepaid expenses means that the advances for the expenses have been paid and the benefit will be
accrued in future. The changes in current assets can be measured by different ratios such as quick
ratios, current ratios, cash ratio. Increase in current liabilities means that the amount of current
liabilities such as account payable, creditors, outstanding salaries, outstanding wages or other
outstanding amount have been increased. The creditors amount has been increased due purchase
of goods on credit by the creditor and the account payables has also increased due to payment
remained due by the company or due to increase in credit purchase by organization. The
outstanding amount may be increased because the salaries or wages have not been paid to the
employees or staff by the company. After considering the changes the current assets and current
liabilities the total cash outflow and cash inflow from operating nature of activities comes to

106200. An amount of 32400 has been shown as addition to building. This addition means that
the company has incurred capital expenditure on building for building any additional floor or for
building lifts, parking lot etc. The equipment has been disposed of at an amount of 12000. The
total amount of expenditure incurred by the company on investing activities is 20400.
The company has incurred the expenditure of 13200 for the purchase of treasury shares. These
are the share which the company buyback from the open market so as to reduce its number of
outstanding shares and to increase the dividend amount of the remaining shareholder. Company
has paid a cash dividend of 36000 and also issued bonds at par. The total amount collected from
the bondholders from the bonds is 60000. The inflow of cash from financing activities comes to
10800. An increase of 96600 has been noticed in the cash and its equivalents. The closing
balance of cash as on 31st December 2018 was 100000. After adding the closing balance of 2018
the closing balance of cash of 2019 comes to 196600.
Question 2
Analysis of Equity Return
While evaluating the equity return it has been analyzed that the total amount of share capital of
the company in 2019 is 2016000 and the retained earnings of the company is 52800. This
retained earning signifies that the company does not pay the whole amount of net profit to the
shareholder as dividend; the companies hold some amount as retained earnings for expending its
business or to utilize the retained earnings in its working capital. The shareholders equity amount
is 268800 and the return from equity portion comes to 25 percent. This return indicates that the
company is not an all equity company rather the company raise its funds from issue of debenture
or bonds. The company likes to take risk and wants to show maximum of debenture in its capital
structure. The company is a leverage company and wants to raise maximum of funds through the
issue of debenture or bonds. The company should balance the debt equity portion. The debt
equity ratio of the company should be 1:1. Company should not raise maximum funds from the
issue debenture or bonds rather it should issue equity. Though the debenture saves the tax
amount of the company still the company should not issue 70-80 percent debenture, it should
also issue equity shares to raise the funds.
Exercise 2
Question no. 1

While analyzing the equity section of the company as on 31st December 2018, it has been
analyzed that the authorized capital of the company is 320000 and the issue and paid up capital is
220000. The additional paid up capital is 1610000 and the company has a huge retained earnings
of 1334000. These huge retained earnings denotes that the company does not distribute all of the
dividends to its shareholders but also keep maximum amount for the expansion of its business of
any segments of the company. The company in 2018 issue 200000 ordinary and collected an
amount of 200000 from the ordinary shareholders and the company also distribute 10000
ordinary equity s as dividend to its equity shareholders. Company also issue 10000 additional
shares at 12 per share. In 2017 the closing balance of ordinary shares was 1400000 and the
shares distributed as dividend was 100000 and the additional paid up capital was 110000. The
balanced of retained earnings on December 2017 was 2160000 and the company as on that date
distributed dividend at the rate of 11 per share of an amount of 100000. The company on
December 2017 also purchase 40000 own shares at the rate of 12 per share of an amount of
480000. The profit on the sale of treasury shares was 24000.
In December 2017 the company purchases treasury shares of 40000 at an amount of 480000 and
sale 24000 treasury share at the rate of 13 per share. The sale was recorded at cost and the total
amount received on the sale of 24000 treasury shares was 288000. In December 2017 only the
company also sold another 6000 treasury shares at the rate of 9.5 per share which was also
recorded at cost. The company sold the 6000 treasury shares at an amount of 72000.
Question 2
In 2018 the net profit of the company was 1072000 and the number of outstanding shares was
220000. The basic EPS forv2018 comes to 4.87 after dividing the net profit from the outstanding
equity shares. The EPS measure the profit of the firm and the investor before purchasing the
shares of the company analyze the EPS of the company and it is also important to the traders of
the stock market. If the EPS of the company is high then it means that the company has a good
profitability.

Exercise 2
Books of ABC
Journal Entries
Date Particulars Dr. Cr.
Amount Amount
2018
Jan. 1 Retained Earnings 110,000.00
To Share Capital 10,000.00
To Share Premium 100,000.00
(Being share dividend of 10,000 shares declared and distributed
at a price of 11 each)
Feb. 1 Treasury Share Capital 480,000.00
To Retained Earnings 480,000.00
(Being 40,000 own shares purchased at a price of 12 each)
Mar. 1 Retained Earnings 255,000.00
To Dividend Payable 255,000.00
(Being dividend declared at the rate of 1.5 per share on 170,000
shares)
Apr. 1 Dividend Payable 255,000.00
To Bank 255,000.00
(Being dividend paid)
Bank 120,000.00
To Share Capital 120,000.00
(Being ordinary shares issued at a price of 12 each)
Nov. 1 Bank 312,000.00
To Treasury Share Capital 288,000.00
To Retained Earnings 24,000.00
(Being 24,000 treasury shares sold at a price of 13 each and
profit on sale transferred to Retained Earnings)
Dec. 1 Bank 57,000.00
Retained Earnings 15,000.00
To Treasury Share Capital 72,000.00
(Being 6,000 treasury shares sold at a price of 9.5 each and loss on
sale transferred to Retained Earnings)

Exercise 3
Books of Husky Co.
Journal Entries
Dat
e Particulars Dr. Cr.
Amount Amount
201
7 Investment in shares of Antonio Account 4,000,000.00
To Bank Account 4,000,000.00
(Being 100,000 share of Antonio purchases at a price of 40 each
and classified as trading securities)
Investment in shares of Antonio Account 200,000.00
To Investment Reserve Account 200,000.00
(Being investment appreciated and unrealized gain on investment
transferred to Investment Reserve Account)
Investment in shares of Paulo Account 10,000,000.00
To Bank Account 10,000,000.00
(Being 200,000 share of Paulo purchases at a price of 50 each
and classified as investments available for sale)
Investment in shares of Paulo Account 400,000.00
To Investment Reserve Account 400,000.00
(Being investment appreciated and unrealized gain on investment
transferred to Investment Reserve Account)
Investment in shares of Rodriguez Account 20,000,000.00
To Bank Account 20,000,000.00
(Being 1,000,000 share of Rodriguez purchases at a price of 20
each and obtained significant influence over Rodriguez)
Bank Account 250,000.00
To Investment in shares of Rodriguez Account 250,000.00
(Being cash dividend received and investment reduced to the
extent
of cash dividend received)

Investment in shares of Rodriguez Account 1,250,000.00
To Share of Profit in Rodriguez 1,250,000.00
(Being share of profit in Rodriguez recorded)
201
8 Bank Account 2,640,000.00
To Investment in shares of Antonio Account 2,520,000.00
To Profit on sale of Investment 120,000.00
(Being 60,000 shares of Antonio sold at a price of 44 each)
Investment in shares of Antonio Account 120,000.00
To Investment Reserve Account 120,000.00
(Being investment appreciated and unrealized gain on investment
transferred to Investment Reserve Account)
Bank Account 4,400,000.00
To Investment in shares of Antonio Account 4,160,000.00
To Profit on sale of Investment 240,000.00
(Being 80,000 shares of Paulo sold at a price of 55 each)
Investment in shares of Paulo Account 360,000.00
To Investment Reserve Account 360,000.00
(Being investment appreciated and unrealized gain on investment
transferred to Investment Reserve Account)
Bank Account 500,000.00
To Investment in shares of Rodriguez Account 500,000.00
(Being cash dividend received and investment reduced to the
extent
of cash dividend received)
Investment in shares of Rodriguez Account 2,000,000.00
To Share of Profit in Rodriguez 2,000,000.00
(Being share of profit in Rodriguez recorded)