ISC 2021

ACCOUNTS PROJECT

Introduction to the scope of syllabus and paper format. I have repeatedly told you in class- XI
that class- XII Accounts is very easy compared to class – XI Accounts. The proper format and the
marking scheme are also different.

The entire paper of 100 marks is divided into – Theory and Project. Theory comprises 80 marks
whilst Project comprises 20 marks. Theory is further sub-divided into three sections –

Section – A (Compulsory) - consisting of 60 marks and 1 out of the two sections, B and C,
consisting of 20 marks.

In Section A, we have Part – I, which is compulsory and contains12 marks. There will be 6 short
answer questions based on application, knowledge, understanding on the topics meant for
Section – A. Each question carries 2 marks.

Part II of Section – A has 7 questions, of which, you are to answer any 4. Each question carries
12 marks. The question can have sub-parts and may carry 4+4+4, 6+6, 8+4 or a full-fledged sum
carrying 12 marks. Let me remind you, children, that the council nowhere in the scope of
syllabus or even in rules and regulations specified the marking pattern. We have only assumed
based on ISC specimen paper and past year’s question papers.

The topics related to Section – A are as follows :

1. Partnership
i. Appropriations of profits
ii. Valuation of goodwill
iii. Admission
iv. Retirement
v. Death
vi. Dissolution of partnership
2. Company Accounts
i. Issue of shares upto forfeiture and re-issue including Pro-rata allotment of
shares
ii. Issue and redemption of debentures
iii. Company Balance Sheet under Schedule III of the Companies Act, 2013.

Section – B :- Management Accounting and carries 20 marks

There will be three questions, of which you are to answer ANY 2. Here also, the break up may
be 5+5, 2+8, 2 x 5 or a full-fledged sum of 10 marks. Again, my dear children, this is hypothetical
and not Gospel’s Truth.
The topics to be covered are as follows :

1. Analysis of Financial Statements

2. Ratio analysis
3. Cash Flow Statement (CFS)

A very small request to all of you to not leave out any portion of the syllabus as there may be a
mix and match of questions in both the sections.

Section – C :- Computerised Accounting, Consisting of 20 marks.

There will be three questions based on three topics of which you are required to attempt ANY
2.

1. Data Base Management System (DBMS)

2. Electronic Spread Sheet
3. Practical Based Questions

Each question carries 10 marks and may be in the scale of 2 x 5.

PROJECT WORK

You are expected to do only two projects covering the entire syllabus. Each project will carry 10
marks and will be examined internally and externally. For one project, school teacher will mark
on the entire project for three and a half marks and the external will mark the same on three
and a half marks.

Viva-voce questions will be asked by the external examiner amounting to 3 marks. Thus, the
total project component amounts to 10 marks. Same is the marking scheme for Project 2.

Ratio Analysis is supposed to be one of the easiest chapters as it involves only formulae
memorization and easy calculations. Thus, I have tried my level best to explain the project on
ratio analysis with the help of a given problem done step by step. After memorizing and
understanding the calculation part, you are required to prepare a question as per the sample
given and complete your project.

PROJECT 1

Taking the audited/unaudited financial results of any leading company, its liquidity, solvency,
turnover and profitability ratio of two years should be calculated and the comparison of the
ratios of both the years should be shown graphically and/or pictorially (bar Diagrams, pie
charts).
Question: The following particulars are related to ABC Ltd.

Particulars March 31, 2012 March 31,

2013
Revenue from operations 65,00,000 85,00,000
Cost of Goods Sold / Cost of Revenue from 44,00,000 61,00,000
Operations 3,90,000 4,50,000
Administrative Expenses 5,50,000 6,00,000
Selling and Distribution Expenses 2,20,000 2,35,000
Depreciation 85,000 1,11,000
Interest on Mortgage Loan 30,000 15,000
Share Issue Expenses Written off

BALANCE SHEET
as at 31 March 2013 and 31st March 2012
st

Particulars Note No. 31.03.13 31.03.12

I. EQUITY AND LIABILITIES

1. Shareholders’ Fund:
(a) Share Capital @ Rs.10 per share 11,50,000 10,50,000
(b) Reserve & Surplus 1 9,85,000 5,70,000
(c) Money Received against Share Warrants ------ ------
2. Share Application money pending allotment ------ ------
3. Non-Current Liabilities:
(a) Long-term Borrowings 8,50,000
(10% Debentures) 11,10,000
(b) Deferred Tax Liabilities (net) ------
(c) Other Long-term Liabilities ------ ------
(d) Long-term Provisions ------ ------
4. Current Liabilities: ------
(a) Short-term Borrowings ------
(b) Trade Payables (Creditors) ------ 8,00,000
(c) Other Current Liabilities 10,05,000 ------
(d) Short-term Provisions ------ ------
------ ________
Total ________ 42,50,000
42,50,000

Particulars Note No. 31.03.13 31.03.12

ASSETS
1. Non-Current Assets:
(a) Fixed Assets: 18,00,000 16,60,000
(i) Tangible Assets ------ ------
(ii) Intangible Assets ------ ------
(iii) Capital Work-in-Progress ------ ------
 (iv) Intangible Assets under development ------ ------
(b) Non-Current Investments ------ ------
(c) Deferred Tax Assets (net) ------ ------
(d) Long-term Loans & Advances ------ ------
(d) Other non-Current Assets

2. Currents Assets:
a) Current Investment 7,50,000 5,90,000
b) Inventories 16,00,000 9,00,000
c) Trade Receivable 1,00,000 1,20,000
d) Cash and Bank balances ------ ------
e) Long Term Loans & Advances ------ ------
f) Other Current Assets ------ ------
________ ________
Total 42,50,000 32,70,000
Notes to Accounts:
Particulars 2013 2012
Rs. Rs.
1. Balance of Profit & Loss 10,00,000 6,00,000
Less: Share Issue Expenses Adjusted (15,000)
(30,000)
9,85,000 5,70,000
Note: Here, inventories do not include Loose Tools and Spare Parts.
You are required to comment upon the financial position of ABC Ltd. by calculating two each of
the following ratios:
(a) Liquidity Ratios; (b) Solvency Ratios;
(c) Activity Ratio; and (d) Profitability Ratios.

Solution :
Ratio Analysis may be defined as the process of determining and interpreting numerical
relationship between figures of the Financial Statements. In other words, it is a tool which helps
us to measure the profitability and the financial position of the business organization. It also
helps to measure the efficiency of the business organization by revealing increase or decrease
of the various ratios.

Objectives or Advantages of Accounting Ratios

Accounting ratios are true test of the profitability, efficiency and financial soundness of the
company. These ratios have the following objectives:

(i) Facilitating comparative analysis of the performance:

Every promising company has to compare its present performance with the previous
performance which can be located by the calculation of different ratios. Comparison
not only tells, where the firm stands but also its prospects. It enables both intra-firm
and inter-firm comparison.
(ii) Assessing the efficiency of the business organization:
We can ascertain whether the firm is solvent or not by calculating solvency ratios
which show the relationship between the assets and liabilities. If total assets are less
than the outside liabilities it shows unsound position of the business and in such
case the business will try its best to improve its solvency.
(iii) Measurement of the profitability of the firm:
We can measure the profitability of the business by calculating different profitability
ratios such as gross profit, net profit and other ratios. Profitability ratios indicate the
actual performance of the business organization.
(iv) Helpful in budgeting and forecasting:
Accounting ratios provide a reliable data, which can be compared, studied and
analyzed. These ratios provide a platform for future forecasting and indicate the
future prospects of the company. The ratios can also serve as a basis for preparing
budgets and also determination of future course of action.
(v) Judging the operational efficiency of the management:
The operational efficiency of the business can be ascertained by calculating
operating ratio which shows the operational cost of the business and so it will be in
the interest of business, if it is lower.

Limitations of Accounting Ratios or Ratio Analysis

Accounting ratios become meaningful when they are compared with the previous
performance of the firm or with the performance of other firms. The ratios, though indicate
profitability, efficiency and financial soundness, but they are not the solution of all
problems. Accounting ratios suffer from the following limitations:
(i) Misleading results in the absence of absolute data:
In the absence of actual data, the size of the business cannot be known. If gross
profit of two firms is 60%. It may be just possible that the gross profit of one is 6,000
and sales Rs. 10,000, whereas the gross profit and sales of the other firm is Rs.
6,00,000 and Sales 10,00,000. Profitability of the two firms is the same but the
magnitude of their business is quite different.
(ii) Price level changes affect the ratios:
The comparability of ratios suffers, if the price of the commodities in two different
years is not the same. Change in price affects the cost of production, sales and also
the value of assets.
(iii) False results:
Ratios are based upon the financial statements. In case, financial statements are
incorrect or the data upon which ratios are based is incorrect, ratios calculated will
also be false and defective in nature.
(iv) Limited comparability:
The ratio of the one firm cannot always be compared with the performance of other
firm, if uniform accounting policies are not adopted by them.
(v) No single standard ratio:
There is not a single standard ratio which can indicate the true performance of the
business at all times and in all the circumstances. Every firm has to work in different
 situations and circumstances, so a particular ratio cannot be supposed to be
standard for everyone.

RATIOs AT A GLANCE

Liquidity Ratio Solvency Ratio Activity Ratio Profitability Ratio

Debt equity Ratio Total assets Proprietary Interest

to debt Ratio Ratio coverage Ratio

Current Ratio Quick/Liquid/Acid Test Ratio

Working capital Trade Receivables Trade Payables Inventory

Turnover Ratio Turnover Ratio Turnover Ratio Turnover Ratio

Gross Profit Net Profit Operating Operating Profit Earning Per Price Earning
Return on
Ratio Ratio Ratio Ratio Share Ratio

FORMULAE
Liquidity Ratios:
 Current Assets
1. Current Ratio: --------------------
Current Liabilities
Current Assets = Current Investments + Inventories (excluding Loose Tools and
Spare Parts) + Trade Receivables + Cash and Cash Equivalents +
Short –term Loans and Advances + Other Current Assets.
Current Liabilities = Short term borrowings + Trade payables + Other Current Liabilities
+ Short term Provisions

Items of Current Investments :

Those investments which are held to be converted into cash within short period, i.e.
within 12
months from the date of purchase of the investment.
 Investments in partnership firms
 In equity shares
 In preference shares
 In debentures
 In mutual funds
 In govt. securities
 Short Term Investment (to be taken as cash equivalent while preparing Cash
Flow Statement)
 Marketable securities (to be taken as cash equivalent while preparing Cash
Flow Statement).
Items of Inventories :
Refers to stocks held for the purpose of trade in the normal course of the business, ie,
for
manufacturing or trading of goods.
 Raw Materials
 Work-in-Progress
 Finished Goods
 Stock-in-Trade
 Stores and Spares
 Loose Tools
 Goods-in-Transit

Items of Trade Receivables :

 Sundry Debtors
 Bills Receivables
Items of Cash and Cash Equivalents :
 Balances with banks
 Balances with banks
 Cheques on hand
 Cash in hand
 Drafts on hand
 Others [specify nature]
Items of Short Term Loans and Advances :
 These are the loans and advances which are expected to be realised within 12
months from
the date of Balance Sheet or within the Operating Cycle of the business.

Items of Other Current Assets :

This is an all inclusive heading which incorporates current asset that do not fit into any
other
asset categories.
 Prepaid expenses
 Dividend receivable
 Interest accrued on investments
 Advance Tax

Items of Short terms borrowings:

 Loans repayable on demand i.e. Overdraft or Cash Credit from Banks.
 Loans from other parties.
 Deposits.
 Other loans and advances nature to be specified

Items of Trade Payables :

 Sundry Creditors
 Bills Payable
Items of Other Current Liabilities :
All current liabilities that are not short-term borrowings or trade payables
 Current Maturities of Long-Term Debt: That part of the long term debt which is
due for payment within 12 months of the date of the B/S.
 Interest accrued but not due on borrowings: Example-interest is payable on
debentures half yearly on 30th June and 31st December. If the company
closes its books on 31st March, it will have to provide interest for the
quarter Jan to March following the accrual concept of accounting. But since this
interest along with the interest from April to June will become due for payment
on 30th June, it will be classified as ‘interest accrued but not due’.
 Interest accrued and due on borrowings: Interest is payable on debentures half
yearly on 30th June and 31st December. If the company closes its books on 31 st
March and interest provided in the books for June to December has not been
paid till 31st March, it will be classified as ‘interest accrued and due’.
 Income received in advance
 Unpaid Dividend: Dividends paid but they remain unclaimed by shareholders.
 Excess application money due for refund and interest due thereon**
 Unpaid matured deposits and interest thereon**
 Outstanding expenses
 Unclaimed dividend
 Calls-in-advance
 Other payables such as outstanding expenses, calls in advance and Interest
thereon, unclaimed dividends, Provident Fund Payable and GST Payable
Items of Short Term Provisions :
 These are provisions against which liability is likely to arise within 12 months from the
date of
Balance Sheet.
The amounts shall be classified as:
 Provision for Doubtful Debts : Trade Receivables are shown at their full value
under Current Assets and Provision for Doubtful Debts is to be shown under
‘Short term Provisions’.
 Provision for employee benefits (who will retire within 12 months from the date
of Balance Sheet.)
 Others (such as provision for taxation, provision for expenses etc.)

Quick Assets
2. Quick Ratio / Liquid Ratio : ------------------
Current Liabilities
OR
All Current Assets – Inventories (excluding Loose Tools and Spare Parts) – Prepaid Expenses
Current Liabilities
OR
Liquid Assets
Current Liabilities
Liquid Assets include the following :
 Current Investments
 Trade Receivables (Bills Receivables and Sundry Debtors Less Provision for
Doubtful Debts)
 Cash and Cash Equivalents
 Short term Loans and advances
Solvency Ratios:
Debt / Long Term Debt
1. Debt to Equity Ratio : ------------------------------------
Equity / Shareholder’s Funds
Debt = Long Term Borrowings + Long Term Provisions
Equity / Shareholder’s Funds = Share Capital + Reserves and Surplus
OR
Non Current Assets + (Current Assets – Current
Liabilities) – Non Current Liabilities
= Non Current Assets + Working Capital – Non Current
Liabilities
= (Tangible Assets + Intangible Assets + Non Current
Investments + Long Term Loans and Advances) +
Working Capital – (Long Term Borrowings + Long Term
Provisions)

Shareholder’ Funds / Equity

2. Proprietary Ratio : ------------------------------------
 Total Assets

Total Assets = Non Current Assets + Current Assets

= Tangible Assets + Intangible Assets + Non Current Investments + Long
Term Loans and Advances
+
Current Investments + Inventories (including Loose Tools and Spare Parts) +
Trade Receivables + Cash and Cash Equivalents + Short-term Loans and
Advances + Other Current Asset
Debt
3. Debt to Total Assets Ratio : ----------------------
Total Assets
Net profit before interest and taxes
4. Interest Coverage Ratio : ------------------------------------
Interest
Activity Ratios:
1. Trade Receivable Turnover Ratio:= Credit Revenue from Operation
Average Trade Receivable
Credit Revenue from Operation = Revenue from Operation – Cash Revenue from Operation

Average Trade Receivables = Opening Trade Receivable + Closing Trade Receivable

2
2. Trade Payable Turnover Ratio: = Net Credit Purchases
Average Trade Payable

Average Trade Payables = Opening Trade Payable + Closing Trade Payable

2
Revenue from Operations
3. Working Capital Turnover Ratio = -----------------------------------
Working Capital
Where, Working Capital = Current Assets – Current Liabilities
4. Inventory Turnover Ratio = Cost of Goods Sold
OR
Cost of Revenue from Operation
Average Inventory
Cost of goods sold = Opening Inventory + Net Purchases + Direct Expenses – Closing
Inventory
Cost of Revenue from Operations = Revenue from Operations – Gross Profit
OR
Cost of Material Consumed (including direct expenses) + Change in inventories of WIP
and Finished Goods
OR
Opening Inventory + Net Purchases + Direct Expenses – Closing inventory

Average Inventory = Opening Inventory + Closing Inventory

2
 Profitability Ratios :
Gross Profit
1. Gross Profit Ratio : ----------------------------------- x 100
Revenue from Operations

Gross Profit = Revenue from Operations – Cost of Revenue from Operations/Cost of

Goods Sold

Net Profit
2. Net Profit Ratio : ----------------------------------- x 100
Revenue from Operations
Net Profit = Gross Profit + Other Income – Indirect Expenses – Tax
3. Operating Ratio:
Cost of Revenue from Operations + Operating Expenses – Operating Income x 100
Revenue from Operations
Operating Expenses = Employees Benefit Expenses + Depreciation and Amortisation Expenses +
Other Expenses [i.e. Selling and Distribution Expenses + Office and Administrative Expenses +
Discount + Interest on Short Term Loans + Bad Debts]
Operating Income = Trading Commission Received, Cash Discount Received
4. Operating Profit Ratio: Net Operating Profit x 100
Revenue from Operation
Net Operating Profit = Net Profit after Tax + Non-Operating Expenses – Non Operating Incomes
OR
Gross Profit – Operating Expenses + Operating Incomes
Non Operating Expenses = Interest on Debentures / Long Term Loans + Loss on sale of Non
Current Assets + Loss from Fire + Income Tax + Charities + Donations
Non Operating Incomes = Interest Received on Investment + Profit on sale of Non Current
Assets

5. Earning per share: Net Profit after Tax and Preference Dividend
No. of Equity Shares

6. Price Earning Ratio : Market Value of an Equity share

Earning per share
7. Return on Investment : Net Profit before Interest and Tax x 100
Capital Employed

(a) Liquidity Ratios:

Current Assets
Current Ratio :
Current Liabilities
16,10,000
Year 2012 : = 2.01:1
8,00,000
 24,50,000
Year 2013 : = 2.44:1
10,05,000
Liquid Assets
Quick Ratio :
Current Liabilities

7,10,000
Year 2012 : = 0.89:1
8,00,000

8,50,000
Year 2013 : = 0.85:1
10,05,000

(b) Solvency Ratio :

Long-term Debts
Debt Equity Ratio :
Shareholders’ Funds

8, 50,000 8,50,000
Year 2012 : = = 0.52:1
10, 50,000 + 6, 00,000 – 30,000 16, 20,000

11, 10,000 11, 10,000

Year 2013 : = = 0.52:1
11, 50,000 + 10, 10,000 – 15,000 21, 35,000

Total Assets
Total Assets to Debt Ratio :
Debts

32,70,000
Year 2012 : = 3.85:1
8,50,000

42,50,000
Year 2013 : = 3.83:1
11,10,000

(c) Activity Ratios :

Cost of Revenue from operations
Inventory Turnover Ratio =
Average Inventory
44,00,000
 Year 2012 : = = 4.89 times
9,00,000

61,00,000
Year 2013 : = = 4.88 times
12,50,000

Credit Revenue from operations

Trade Receivable Turnover Ratio =
Average Trade Receivable
65,00,000
Year 2012 : = = 54.17 times
1,20,000
Year 2013 :
1,20,000 + 1,00,000
Average Trade Receivable = = 1,10,000
2
85,00,000
Trade Receivable Turnover Ratio = = 77.27 times
1,10,000
Gross Profit
(d) Profitability Ratios : = x 100
Net Revenue from Operations

Gross Profit = Revenue from Operations – Cost of Revenue from Operations

21,00,000
Year 2012 : x 100 = 32.31%
65,00,000

24,00,000
Year 2013 : x 100 = 28.24%
85,00,000

Cost of Goods Sold/Cost of Revenue from Operation

Operating Ratio : = x 100
Net Revenue from Operations
44,00,000 + 11,60,000
Year 2012 : = x 100 = 85.54%
65,00,000
61, 00,000 + 12,85,000
Year 2013 : = x 100 = 86.88%
85,00,000
Operating Profit Ratio
For Year 2012 = (100 – 85.54) = 14.46%
And Year 2013 = (100 – 86.88) = 13.12%
Please show your calculation with the help of the formula also.
Net Profit
Net Profit Ratio = x 100
Net Revenue from Operations
Net Profit = Rev. from operations – Cost of Rev. from Operations - Administrative
Expenses – Selling Expenses - Depreciation – Interest – Share Issue
Expenses
Written off
8,25,000
Year 2012 : = x 100 = 12.69%
65,00,000

9,89,000
Year 2013 : = x 100 = 11.64%
85,00,000
Net Profit after Tax and Pre. Dividend
Earning Per Share (E.P.S) =
No. of Equity Shares
8,25,000
Year 2012 = = Rs.7.86
1,05,000

9,89,000
Year 2013 = = Rs.8.60
1,15,000
Comments:
1. Although the current ratio has improved in the year 2013 and is well above the standard
of 2 : 1, the short-term financial position of the company cannot be said to be
satisfactory as increase in current ratio is not followed by increase in quick ratio. It
shows that increase in current ratio was due to increase in inventory. A large portion of
current assets consists of inventory which is the least liquid of current assets.

2. Debt equity ratio is the same, whereas total assets to debt ratio has marginally
decreased from 3.85:1 to 3.83:1. The long-term financial position of the company is
quite satisfactory.

3. There has been a decline in inventory turnover ratio inspite of increase in Turnover
which indicates that there is considerable amount of obsolete or unsaleable inventory
 with the company. Increase in inventory level is also evident from the increasing trend
of current ratio and declining trend of quick ratio. Increase in Trade Receivable turnover
ratio indicates that amount from debtors is being collected more quickly.

4. Gross Profit Ratio has decreased by 4.07% which indicates that the price of material
purchased or wages and other direct expenses have gone up much more than the
increase in selling price. Operating ratio has gone up which has resulted in lower margin
of profit on sales. Net Profit ratio has decreased from 12.69% to 11.64% which is an
indication that management has to take steps to improve the profitability.

Conclusion : In spite of increase in volume of sales, gross profit ratio and net profit ratio has
gone down. The management should take immediate remedial measures with respect to
controlling costs and inventory. So far as overall profitability and financial position is concerned,
it is quite satisfactory.
Please note that you should not forget to write the following in the beginning of the project
page wise.

1. Your identity.
2. Index
3. Project Topic.
4. Introduction to the project – covering definition, advantages and limitations.
5. Formulae of Ratio Analysis.
6. Solution of a problem based on two years.
7. Graphical representation of the solution.
8. Conclusion- given in the solution.
9. Acknowledgement.
10. Bibliography.

The above figures are shown graphically as follows:

Name of the ratios at a glance 2012 2013

Current Ratio 2.01:1 2.44:1
Quick Ratio 0.89:1 0.85:1
Debt Equity Ratio 0.52:1 0.52:1
Total Assets to Debt Ratio 3.85:1 3.83:1
Inventory turnover Ratio 4.89 times 4.88 times
Trade Receivable Turnover Ratio 54.17 times 77.27 times
Gross Profit ratio 32.31 % 28.24%
Net Profit Ratio 12.69% 11.64%
Operating Ratio 85.54% 86.88%
Operating profit Ratio 14.46% 13.12%
Earnings Per Share Rs.7.86 Rs.8.60
N.B : To be done in such a manner that the files are presentable to the Visiting Examiner
during Jan/ Feb 2021.