CBSE Set Qa4 Accounts Sample Test Papers For Class 12th for students online

Accounts Class - XII  (CBSE)
You are on Set no 1 Answer 10 to 15

Part B

Q10) Define the terms 'Funds' and 'Flow' in the context of Funds Flow Statement.  (Marks 2)
Ans10) Funds : The term funds has two interpretations. In narrower sense, the term means cash.
In broader sense, the term means working capital i.e. the difference between current assets and current liabilities. Thus in the context of funds flow statement, the term funds means working capital. The term flow means change. Thus, the term flow of funds means change of funds or any increase or decrease in working capital.

Q11) Explain the meaning and significance of:
(a) Return on Equity
(b) Interest Coverage Ratio   (Marks 4)
Ans11)  Meaning and significance of :
(a) Return on Equity: 
This ratio indicates the rate of return available to equity shareholders. The profit that is available to the equity shareholders is the net profit after interest, tax and dividend payable on preference share capital.
Return on Equity = (Net profit after int., tax, pref dividend)/ Eq. shareholder's funds
Equity shareholders' funds = paid up equity share capital, reserves and application of profits

Sig: This ratio is used to compare the performance of a company's equity capital with that of other companies alike in quality, The company with higher returns on equity is preferred by investors and has greater market value of its share.

(b) Interest coverage Ratio :
This ratio is computed by dividing net profit before interest and tax by fixed interest charges. It indicates how many times the profit covers the interest. 
= (Net profit before interest and income tax)/Fixed interest charges

Sig: This ratio measures the safety margins for long term lenders. Higher the ratio, the more secure the lender regarding regular payment of interest. If the profit just equals interest, it is bad state of affairs for the company as there will be nothing left for shareholders.

Q12) From the following information, prepare a comparative Balance Sheet of Depth Ltd. :  (Marks 5)

Ans12)  

Depth Ltd.
Comparative Balance Sheet as at

* figures in bracket indicates negative figure.

Q13) The current ratio of a company is 2 : 1. State giving reasons which of the following would improve, reduce, or not change the ratio :
(a) repayment of current liabilities,
(b) purchasing goods on cash,
(c) sale of office equipment for Rs. 4,000/- (Book value Rs. 5,000/-),
(d) sale of goods Rs. 11,000/- (cost Rs 10,000/-),
(e) payment of dividend.  (Marks 5)
Ans13)  (a) Repayment of current liabilities :
The ratio will improve because both current assets and current liabilities will reduce by the same amount.
For example, assuming, current assets = 20000
Current liabilities = 10000
If Rs. 5000 are paid, the ratio will be = 15000/5000 = 3 : 1
Thus, the ratio will improve.

(b) Purchasing goods on cash :
There will be no changes in the current ratio because the current assets will increase and decrease by the same amount without any changes in the current liabilities and hence the current ratio.

(c) Sale of office equipment :
There will be an increase in the current ratio because the current assets will increase by Rs. 4000 and there will be no change in the current liabilities.

(d) Sale of goods for 11000 costing 10000 will improve the current ratio for there will be a net increase of 1000 in current assets (goods will decrease by 10000 and cash increase by 11000) without any change in current liabilities.

(e) Payment of dividend :
The ratio will decrease as there will be a reduction of current assets without any decrease in the current liabilities.

Q14) State the reasons whether the following would result in an inflow, outflow or no flow of funds. Attempt any four :
(a) Issue of debentures;
(b) Debentures converted as preference shares;
(c) Amount transferred to provision for taxation;
(d) Tax refund;
(e) Repaid loan on mortgage.  (Marks 5)
Ans14) (a) Issue of debentures :
Inflow of funds. This is because of the items involved in the transaction - cash and debentures, cash is current and will increase whereas Debentures is non current. Flow of funds takes place when one is current and the other is non-current.
(b) Debentures converted as preference shares :
No flow of funds because both the items of the transaction, i.e. debentures and preference shares are non-current.
(c) Amount transferred to prov. for taxation :
No flow of funds because the terms involved are non-current.

(d) Tax refund will have inflow of funds as the refund of tax will increase the cash balance.

(e) Repaid loan on mortgage :
Outflow of funds as cash is decreasing for repayment of loans.

Q15) From the following information, prepare a Cash-Budget for the months of January, February and March, 1998:

Selling Price is Rs. 80/- per unit
Purchase Price is Rs. 50/- per unit
Office Expenses are 1,500/- per month. Drawings are Rs. 600/- per month. Every month 10% of the sales are on credit for one month and the remaining for cash. Cash in hand on January 1, 1998 is Rs. 12,000/-. There is no opening and closing stock. (Marks 6)
Ans15)  

Cash Budget

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