Financial Accounting
Q1. Given the following information of ABC Ltd. as of March 31st:
- Revenue Rs. 5,00,000
- Cost of Goods Sold Rs. 3,00,000
- Operating Expense Rs. 80,000
- Depreciation Rs. 30,000
- Tax Rate 30%
Prepare the Income Statement and calculate the Net Profit after Tax. Additionally, evaluate how the inclusion of non-cash items like depreciation affects the financial position of the company, and discuss its significance in decision-making for stakeholders.
Ans :
Introduction
The income statement (or profit and loss statement) is a type of financial report that summarizes the income, expenditures, and net profit or loss for a certain accounting period. Because it shows how profitable and efficient the business is running, it is an essential part of financial analysis. The income statement is a vital tool for stakeholders, such as creditors, owners, and management, to evaluate the viability and performance of the company.
Concept & Application
To prepare the income statement for ABC Ltd. with the provided data, we calculate each component in sequence:
- Revenue: Rs. 5,00,000
- Cost of Goods Sold (COGS): Rs. 3,00,000
Gross Profit: Revenue−COGS
Gross Profit = Rs. 5, 00,000 – Rs. 3, 00,000 = Rs. 2, 00,000
Conclusion
ABC Ltd.’s income statement as of March 31st reveals a net profit after tax of Rs. 63,000. This statement not only provides a snapshot of profitability but also highlights the impact of non-cash items, such as depreciation, on cash flow and tax liability.
Q2 (A) Compare and contrast the role of journal entries and ledger accounts in the accounting process. How does the relationship between these two elements ensure accurate financial reporting? Support your answer with examples. (5 Marks)
Ans :
Introduction
Journal entries and ledger accounts are critical components of the accounting process, allowing for precise financial tracking and reporting. Journal entries capture financial transactions as they happen, recording both the debit and credit sides, whereas ledger accounts consolidate and categories these entries into individual accounts.
Concept & Application
Journal entries are essential in accounting as they chronologically document all of a company’s financial transactions. Journal entries are used to record all financial transactions. These entries specify the type of transaction, the accounts that are impacted, and whether the accounts are debited or credited.
Conclusion
The relationship between journal entries and ledger accounts is fundamental to the accounting process, ensuring that financial records are accurate, organized, and balanced.
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