Q1. Prepare final accounts from the following balances -Trial Balance as on 31.03.2024

Addition information:
• The closing inventory as on 31.03.2024 was valued at Rs. 3,68,500.
• Depreciation on plant @ 15% and on Building @ 10%.
• Outstanding printing and stationery expense Rs. 5000.
• Prepaid advertisement expense Rs. 15000. (10 Marks)
ANSWER :
Final accounts are the financial statements prepared at the end of an accounting period to determine the financial position and profitability of a business. They provide a comprehensive summary of all financial transactions recorded during the period and help stakeholders in decision-making.
The Final Accounts consist of three key statements:
- Trading Account – It calculates the gross profit or loss by comparing sales revenue with the cost of goods sold.
- Profit & Loss Account – It determines the net profit or net loss by deducting all operating and non-operating expenses from gross profit.
- Balance Sheet – It presents the financial position of the business by listing assets, liabilities, and capital at a given date.
As per ICAI (Institute of Chartered Accountants of India), the Final Accounts of a business entity can be prepared in the following four formats based on the nature of the entity and legal requirements:
1. T-Format (Ledger Format)
- This is the traditional format used for Trading and Profit & Loss Account and Balance Sheet.
- It consists of two columns:
- Left side (Dr.) – Expenses and Losses
- Right side (Cr.) – Incomes and Gains
- The Balance Sheet also follows a T-shape, where:
- Left side (Liabilities)
- Right side (Assets)
Example:
Profit & Loss Account (T-Format)
Dr. (Expenses & Losses) | Cr. (Incomes & Gains) |
---|---|
Salaries ₹50,000 | Gross Profit ₹1,50,000 |
Rent ₹20,000 | Interest Income ₹10,000 |
Depreciation ₹15,000 | Net Profit c/d ₹75,000 |
Total ₹85,000 | Total ₹85,000 |
2. Vertical Format (As per Schedule III of Companies Act, 2013)
- Mandatory for companies in India.
- Used for preparing the Statement of Profit & Loss and Balance Sheet.
- The Balance Sheet follows a liabilities and assets structure.
Example:
Balance Sheet (Vertical Format)
Particulars | ₹ (Amount) |
---|---|
Equity & Liabilities | |
Share Capital | 10,00,000 |
Reserves & Surplus | 2,50,000 |
Long-term Borrowings | 5,00,000 |
Total Liabilities | 17,50,000 |
Assets | |
Non-Current Assets (Fixed) | 12,00,000 |
Current Assets (Cash, Debtors) | 5,50,000 |
Total Assets | 17,50,000 |
3. Income & Expenditure Format (For Non-Profit Organizations – NPOs)
- Used by charitable organizations, societies, clubs, etc.
- Replaces Profit & Loss A/c with Income & Expenditure A/c.
- The Balance Sheet structure remains similar to a business entity.
Example:
Income & Expenditure Account
Expenditure (Dr.) | Income (Cr.) |
---|---|
Rent & Maintenance ₹25,000 | Donations ₹80,000 |
Salaries ₹30,000 | Subscriptions ₹40,000 |
Depreciation ₹10,000 | Interest Earned ₹10,000 |
Surplus (Transferred to Capital Fund) ₹65,000 | Total ₹1,30,000 |
4. Receipts & Payments Format (For NPOs & Cash-Based Accounting)
- Used by non-profit entities to record all cash inflows and outflows.
- Similar to a cash book.
- Unlike the Income & Expenditure Account, it includes capital and revenue transactions.
Example:
Receipts & Payments Account
Receipts (Dr.) | Payments (Cr.) |
---|---|
Opening Cash Balance ₹30,000 | Salaries Paid ₹50,000 |
Membership Fees ₹50,000 | Rent & Electricity ₹20,000 |
Grants Received ₹1,00,000 | Fixed Asset Purchase ₹40,000 |
Total ₹1,80,000 | Total ₹1,80,000 |



Q2. Raj Limited provides the following information for the immediately preceding two years. From the given information prepare Comparative Income Statement of the company for the two- year period: (10 Marks)
Particulars | 2023 | 2024 |
Rs. Million | Rs. Million | |
Sales | 5,000 | 3,750 |
Cost of goods sold | 3,000 | 2,450 |
Operating expenses | 750 | 490 |
Financial expenses | 500 | 340 |
Income tax | 150 | 95 |
Net profit | 600 | 375 |

Q3(a).Dividend is the distribution of profits by a company to its shareholders. Companies generally pay two types of dividends: Interim dividend and Final dividend. You are required to explain the term Dividend and explain the two types of dividends.
(5 Marks)
Dividend: An Overview
In the corporate world, a dividend refers to the portion of a company’s profits that is distributed to its shareholders as a reward for their investment in the company’s shares. It is a way for companies to share a part of their earnings with their stakeholders. Typically, dividends are paid in cash, but they can also be issued in the form of additional shares, also known as stock dividends. While not all companies pay dividends, especially in the case of startups or high-growth firms that reinvest profits into the business, dividend payments are common among established companies.
Concept of Dividends
The decision to pay a dividend is typically made by the company’s board of directors, and it depends on various factors, such as the company’s profitability, cash flow, and overall financial health. Dividends are usually paid on a per-share basis, which means the more shares an investor holds, the more they will receive as a dividend. Dividends are usually paid on a regular basis, with quarterly, semi-annual, or annual payments being the most common practice.
Types of Dividends
- Interim Dividend:
An interim dividend is a dividend payment made by a company before the final financial results of the year have been declared. It is typically paid at the end of a financial quarter or half-year and is usually based on the company’s profits for that specific period. Interim dividends are declared and paid to shareholders before the company releases its full-year earnings. They are often seen as a way for companies to reward their shareholders when profits are strong, and liquidity is stable.
Interim dividends are generally considered a sign of a company’s strong cash position. They are not guaranteed and may be reduced or omitted if the company’s financial situation changes or if there are concerns about future earnings. The amount of the interim dividend depends on the company’s performance up to that point and the board’s discretion.
- Final Dividend:
The final dividend is declared by a company after the end of its financial year, based on the company’s overall performance during that period. This dividend is typically paid after the company’s financial statements have been audited, and the annual general meeting (AGM) has been held. It is usually the larger of the two types of dividends and is paid to shareholders after approval from the board and shareholders.
The final dividend is typically considered more reliable than the interim dividend because it reflects the company’s complete financial performance for the year. Companies with strong earnings tend to distribute a higher final dividend, while companies facing financial difficulties may reduce or skip their final dividend altogether. The final dividend is typically declared as a fixed amount per share or a percentage of the face value of the share.
Conclusion
Dividends play a crucial role in the relationship between a company and its shareholders, as they represent a return on investment for the shareholders. Both interim and final dividends serve distinct purposes and are declared at different points in a company’s financial year. While the interim dividend provides an opportunity for shareholders to receive a portion of the company’s profits before the end of the year, the final dividend is a more formal and typically larger distribution based on the company’s annual performance. For investors, the decision to invest in a dividend-paying company often depends on their income needs and risk tolerance. In conclusion, understanding the concept of dividends and the types of dividends can help investors make informed decisions about their investments and the potential returns they can expect from the companies they hold shares in.
Q3(b). In order to take management decisions for a company, it is important to analyze the financial statements of the company in detail with the help of various financial analysis techniques. Explain in one sentence each the 5 techniques of analyzing financial statements. (5 Marks)
In order to make informed management decisions, it is essential for companies to analyze their financial statements in depth. Financial statement analysis involves applying various techniques to evaluate the performance and financial health of a company. These techniques help identify strengths, weaknesses, and areas for improvement, providing a clearer picture of the company’s current financial status and future prospects.
Techniques for Analyzing Financial Statements
- Ratio Analysis: Ratio analysis involves calculating and interpreting key financial ratios, such as profitability, liquidity, and solvency ratios, to assess the company’s financial health and performance.
- Trend Analysis: Trend analysis examines the historical financial performance of a company over multiple periods to identify patterns, growth trajectories, and potential areas of concern.
- Common-Size Analysis: Common-size analysis involves expressing each line item in the financial statements as a percentage of a base figure, such as total revenue or total assets, for better comparison across periods or with industry peers.
- Cash Flow Analysis: Cash flow analysis focuses on evaluating the inflows and outflows of cash from operating, investing, and financing activities to assess a company’s liquidity and ability to meet its obligations.
- Vertical Analysis: Vertical analysis is a technique where each item in a financial statement is expressed as a percentage of a base amount (e.g., total assets or total sales) to understand the relative proportions and performance of different items within the statement.
By utilizing techniques such as ratio analysis, trend analysis, common-size analysis, cash flow analysis, and vertical analysis, companies can gain valuable insights into their financial position. Each technique serves a unique purpose, from assessing profitability to evaluating liquidity and solvency, ultimately guiding management in making strategic decisions that enhance business performance and ensure long-term sustainability.
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