Royalty and Hire Purchase - Step by step approach of Practicals.. (Part-1)

Royalty and Hire Purchase

Study Mat (Dec'09) pg no. 144 Illustrn.5 Partial repossession 

Solution: (100000x7-20% cash, 5 half yearly rest, deprecialation 20%

In the books of Hire-purchase - Trucks A/c and Hire Vendors A/c

Dr- Hire Vendor's:700000   # Truck A/c # Depreciation:140000,. Hire Vendor (on repossession):81000, PL A/c:159000, Balance c/d:320000-Cr

Dr-Bank: 40000, 126000,Truck(on repossession):81000, Balance c/d: 378200 # Hire Vendors A/c # Truck: 700000, Interest: 14000, 11200-Cr

Calculation of Loss:
Value of truck in Hire-purchaser's book, 3 x 100000 - 20% depreciation = 240000
Value credited by HP vendor while repossession, [(140000 + 112000) x 3/7] - 25% as agreed = 81000
Loss shown in Truck A/c of Hire- purchaser = 240000 - 81000 = 159000    

In the books of Hire-vendor - Hire-purchaser A/c and Goods repossessed A/c 
       
Dr- HP Sales:700000, Interest:14000, 11200  # Hire-purchaser A/c #  - Bank:140000, 126000, Goods repossessed: 81000, balance:c/d 378000-Cr

Dr-Hire-purchaser:81000, Cash (expenses-2000)  # Goods repossessed A/c #  Bank (re-sale:80000), PL A/c:3000- Cr
================================================

Solution: Case (c)
Note: This is a question on Debtor System (Just like Branch Accounting)
Ist step:
Dr-Balance b/d (HP Stock:9000, HP Debtors:5000), Goods sold on HP: ***, HP Stock Reserve***, PL A/c*** # HP Trading A/c # Stock Reserve:3000, Bank:60000, Goods Sold on HP:***, Goods repossessed A/c: 500, Balance c/d  (HP Stock: ***, HP Debtors:9000)-Cr

Dr- Balance b/d:18000, Purchase:60000 # Shop Stock A/c # Goods Sold on HP (balancing figure): 58000, Balance c/d: 20000 -Cr ...........  ............ [Total-78000]

Dr- Balance b/d: 5000, HP Stock (balancing figure): 65400 # HP Debtors A/c # Bank: 60000, Goods repossessed A/c: 1400, Balance c/d: 9000 -Cr ..................... [Total- 70400]

Dr- Balance b/d: 9000, Goods Sod on HP: (58000 X 1.5 =) 87000 # HP Stock A/c # HP Debtors: 65400, Goods repossessed: 600, Balance c/d: 30000 -Cr ................. .............. [Total- 96000]

IInd Step:
Dr-Balance b/d (HP Stock:9000, HP Debtors:5000), Goods sold on HP: (58000 X 1.5 =) 87000  HP Stock Reserve:10000, PL A/c (balancing figure): 20500 # HP Trading A/c # Stock Reserve:3000, Bank:60000, Goods Sold on HP:29000, Goods repossessed A/c: 500, Balance c/d  ( HP Stock: 30000, HP Debtors: 9000 ) -Cr ...... ................. . [Total - 131500]

                              Ans, 684333

Joint Stock Compnaies (Theroy)

1. Purposes for which share premium accoount can be applied ;-

    (i) For issuing fully paid bonus shares

    (ii) For writing off preliminary expenses

    (iii) For writing off expenses of the commission paid or discount allowed on any             issue of shares or debenture of the co.

    (iv) For providing premium payable on the redemption of any redeemable                         preference shares or debentures of the co.

2. Conditions of buy-back :- u/s 77A(2)

    (i) the buy-back should be less than 25% of the total paid-up capital and free                   reserves of the co.    

    (ii) The buy-back of equity shares in any financial year should not exceed 25% of its     total paid-up equity capital in that financial year

    (iii) The Co. (Amendment) Act, 2001 has authorized the buy-back by means of a               resolution at the co's Board provided the buy-back does not exceed 10% of the             total paid-up equity capital and free reserves of the co. But, there cannot be more           than one such buy-back in a period of 365 days.

    (iv) Debt-equity ratio shall not exceed 2:1 after such buy-back. The Central Govt.             may prescribe higher ratio for higher classes of company.

    (v) All the shares or other specified securities are fully paid-up

    (vi) The buy-back of the shares or other securities listed on any recognized stock           exchange is in accordance with the regulations made by the SEBI in this behalf.

    (vii) The buy-back of unlisted shares is in accordance of prescribed guidelines.

3. Sources of buy-back:- u/s 77A read with 77B(2)
    (i) It's free reserve
    (ii) Securities premium account
    (iii) Proceeds of any shares or other specified securities
    However no buy-back shall be made out of the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
    

Ratio Analysis

RATIO ANALYSIS

Important Formulae 

 

(1) Gross Profit Ratio                        =          Gross Profit X 100

                                                                               Net Sales

 

Gross Profit                   =          Net Sales – Cost of Goods Sold

Net Sales                       =          Total Sales – Sales Return

Total Sales                     =          Cash Sales + Credit Sales

Cost of Goods Sold  =          Opening Stock + Purchases + Direct Expenses                                                             – Purchase Return – Closing Stock

 

(2) Net Profit Ratio      =          Net Profit X 100

                                                      Net Sales

 

Net Profit                    =    Gross Profit – Operating Expenses + Non Operating                                                     Incomes – Non Operating Expenses

 

Operating Expenses        =          (SODA) Selling Expenses + Office Expenses   

                                                + Distribution Expenses + Administrative Expenses 

(3) Operating Profit Ratio     =          Operating Profit X 100

                                                           Net Sales

 

Operating Profit               =          Gross Profit – Operating Expenses

      OR

Operating Profit                =          Net Profit + Non Operating Expenses – Non Operating Income

 

 

(4) Operating Ratio        =          Operating Cost X 100

                                                           Net Sales

 

Operating Cost             =          Cost of Goods Sold + Operating Expenses

(5)        Operating Ratio  +  Operating Profit Ratio = 1

 

(6) Return on Investment (ROI)       =          Profit before Interest, Tax & Dividend X 100

                                                                                       Capital Employed

 

 

Where, Profit before interest, Tax & Dividend = Profit After Tax + Interest + Tax

                                                               = Profit after Interest + Interest

 

Capital Employed                     =          Share Capital (Equity + Preference)

                                                + Reserves + Surplus/Profit & Loss A/c (Cr.)/Accumulated Profits

                                                + Debentures + Long term loans – [Preliminary Expenses

                                                – Discount/Commission or Issue of Share / Debenture – Profit &                                               Loss A/c (Dr. Balance)]

 

ALTERNATIVELY

Capital Employed          =          Net Fixed Assets + Long Term Investments + Working                                                 Capital

Net Fixed Assets                      =          Total Fixed Assets – Depreciation

Working Capital                       =          Current Assets – Current Liabilities

 

(7) (a)

Return on Shareholder's Funds        =          Profit after Interest & Tax but before Dividend X 100

                                                            Equity or Shareholder's Funds

 

Equity or Shareholders' Fund    =          Share Capital (Equity + Preference) + Reserve

                                                + Surplus / Profit & Loss A/c (Cr. Balance) or accumulated profits

                                                – Preliminary Expenses – Discount/Commission on Issue of Share                                             Debentures – Profit &   Loss A/c (Dr. Balance) or Accumulated                                                Losses

 

 

Profit after Interest, Tax but before Preference Dividend

            = Profit after Tax – Preference Dividend

            = Profit after Interest – Tax – Preference Dividend

            = Profit before Interest – Interest – Tax – Preference Dividend

 

 

(7) (b) Return on Equity (ROE)

            = Profit after interest, Tax & Pref. Dividend X 100

                        Equity Shareholder's Funds

 

Equity shareholder's Fund         =          Equity Share Capital + Reserve + Surplus / Profit & Loss A/c (Cr.                                            Balance) or accumulated profits – Preliminary Expenses – Discount /                                         commission on issue of Share Debentures – Profit & Loss A/c (Dr.                                      Balance) or Accumulated Losses

 

 

(8) Interest coverage (Debt Service) Ratio =          Profit before Interest, Tax & Dividend

                                                                                   Interest on Debentures & Loans

 

(9) Current Ratio                               =             Current Assets 

                                                                          Current Liabilities

 

Current Assets                                      =          Cash in Hand + Cash at Bank + Bills Receivable

                                                            + Sundry Debtors + Marketable Securities or Short term                                                          investments + Loans & Advances + Stock / Inventories +                                                         Prepaid Expenses + Accrued Incomes

 

 

Current Liabilities                                  =          Sundry Creditors + Bills Payable + Provision for Bad                                                    Debts + Provision for Taxation + Bank Overdraft +                                                      Outstanding Expenses + Income received in Advance +                                                       Short term Loans

 

 

(10) Liquid Ratio / Quick Ratio / Acid Test Ratio

                                                =          Liquid Assets or Quick Assets

                                                                     Current Liabilities

 

            Liquid Assets = Current Assets – Closing Stock – Prepaid Expenses

 

(11) Stock Turnover Ratio (STR)                 =          Cost of Goods Sold

                                                                                      Average Stock

 

            Average Stock = ½ (Opening Stock + Closing Stock)

 

(12) Debtors Turnover Ratio (DTR)            =              Net Credit Sales in a year 

                                                                                  Average Accounts Receivable

 

            Average A/c Receivable = ½ (Opening A/c Receivable + Closing A/c Receivable)

            Accounts Receivable = Debtors + B/R

                        OR

            Account Receivable = Opening Debtor + Opening B/R + Closing Debtors + Closing B/R

                                                                        2

 

(13) Average Debt Collection Period            =          Days or Months in a year

                                                                                     Debtors Turnover Ratio

 

Alternatively, Average Debt Collection Period

                                          = Days or Months in a year X Accounts Receivable in a year

                                                                        Net Credit Sales in a year

 

(14) Creditors Turnover Ratio (CTR)          =               Net Credit Purchases  

                                                                                    Average Accounts Payable

 

            Average A/c Payable = ½ (Opening A/c Payable + closing A/c Payable)

            Accounts Payable      =  Creditors + B/P

 

(15) Average Payment Period                       =          Days or Months in a year

                                                                                     Creditors Turnover Ratio

 

Alternatively, Average Payment Period     =  Days or Months in a year X Accounts Payable in a year

                                                                                     Net Credit Purchases in a year

 

(16) Capital Turnover Ratio              =                  Net Sales    

                                                                        Capital Employed

 

(17) Fixed Assets Turnover Ratio                =                  Net Sales  

                                                                                   Net Fixed Assets

 

            Net Fixed Assets = Gross Fixed Assets - Depreciation

 

(18) Working Capital Turnover Ratio          =                 Net Sales  

                                                                                      Working Capital

           

            Working Capital = current Assets – Current Liabilities

(19) Assets Turnover Ratio               =                  Net Sales    

                                                                             Total Assets

 

            Total Assets = Fixed Assets + Long Term Investment Current Assets

 

(20) Debt-Equity Ratio                      =              Long term Debt or Loans  

                                                                         Equity or Shareholders' Funds

 

            Long term Debts                       =          Debentures + Loans or Mortgage

      OR Long Term Debts                     =          Total Debts – Current Liabilities

 

(21) Debt Total Fund Ratio               =               Long Term Debts   

                                                            Total Long Term Funds

 

            Total Funds Term Fund = shareholder's Funds + Long Term Debts

 

(22) Proprietary Ratio                       =          Shareholder's Funds or Proprietor's Fund

                                                                        Total Assets

 

            Shareholder's Funds                 =          Share Capital (Equity + Preference)

                                                            + Reserves + Surplus/Accumulated Profit or P/L A/c(Cr)                                                          - Preliminary Expenses

                                                            –  Discount on issue of Shares/Debentures

                                                            – P/L A/c (Dr.)

 

Partnership - Some typical points

DISSOLUTION OF A FIRM

1. Piecemeal Distribution- In Maximum Loss Method, whereas the maximum loss will be shared in PSR (Profit Sharing Ratio) in normal circumstances but if one (or more) partner becomes insolvent then his deficiency will be shared in Capital Contribution Ratio and not in PSR as per Garner Vs. Murray Rules

2. Garner Vs. Murray Rule -  (The third partner Mr. Wilikins became insolvent.
    a. The loss of realisation shall be shared between all the partners (including the insolvent partner) in their PSR (profit sharing ratio).
     b.  The solvent partner shall bring in cash equal to the amount of loss suffered by them.
As per Indian Partnership Act, the solvent partner shall not bring in cash, their share ofloss on realisation. 
      c. The deficiency of insolvent partner shall be taken over by the solvent partners in their Capital Contribution Ratio (fixed or fluctuating capital).