Management and

Financial Accounting

Assessment-1

Model
Solution
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
Question1: You are given the Financial Statements of Tata Motors Limited, 2019-20. Based on the
data, answer the following questions
1(a). As compared to the year 2019, the owners’ equity has decreased in the year 2020. What is the
most important reason for the same?
Answer: Most important reason for decrease of owners’ equity is the loss of Rs. 7,289.63 in FY20
which has decreased large part of retained earnings, and is thus reflecting in Owner’s
equity.
1(b) Tata Motors Limited had a loss of Rs. 7,289.63 but the Cash Outflow due to operation is only Rs.
1,454.59. Give any two reasons for such a difference between the two.
Answer: The main difference is because of non-cash expenses like Depreciation and amortization
expense, Provision for impairment of Passenger vehicle business, Provision for Onerous contract and
also because of high amount of tax expense (net)
1(c) Do you think that the financial position of Tata Motors Limited has deteriorated over the FY
2019-20?
Answer: Yes. Financial position of Tata Motors Limited has deteriorated over the FY 2019-20 that is
because the losses occurred during the time period but they have marginally improved their fixed
asset over the same period.
1(d) Prepare a Common-Size Balance Sheet for the year 2019-20 by taking Total Assets as a base.
From the Common-Size Balance Sheet, answer the following:

• What is the proportion of Current Assets and Non-Current Assets?

• What is the proportion of Owners’ Equity and Outsiders’ Liabilities?

Solution: Below Given is the common size balance sheet:

(Rs. in
Balance Sheet of Tata Motors Limited as at March 31, Crores)
Common size
FY20
BS for FY20
I. ASSETS
(1) NON-CURRENT ASSETS
(a) Property, plant and equipment 18,870.67 30.15%
(b) Capital work-in-progress 1,755.51 2.80%
(c) Right of use assets 669.58 1.07%
(d) Goodwill 99.09 0.16%
(e) Other intangible assets 5,568.64 8.90%
(f) Intangible assets under development 2,739.29 4.38%
(g) Investments in subsidiaries, joint ventures and
associates 15,182.29 24.26%
(h) Financial assets
(i) Investments 548.57 0.88%
(ii) Loans and advances 138.46 0.22%
(iii) Other financial assets 1,512.96 2.42%
(i) Non-current tax assets (net) 727.97 1.16%
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
 (j) Other non-current assets 1,208.08 1.93%
Total Non-Current Assets 49,021.11 78.32%

(2) CURRENT ASSETS

(a) Inventories 3,831.92 6.12%
(b) Investments in subsidiaries and associate (held for
sale) 0.00
(c) Financial assets 0.00%
(i) Investments 885.31 1.41%
(ii) Trade receivables 1,978.06 3.16%
(iii) Cash and cash equivalents 2,145.30 3.43%
(iv) Bank balances other than (iii) above 1,386.89 2.22%
(v) Loans and advances 232.14 0.37%
(vi) Other financial assets 1,546.56 2.47%
(d) Assets classified as held for sale 191.07 0.31%
(e) Other current assets 1,371.51 2.19%
Total Current Assets 13,568.76 21.68%

TOTAL ASSETS 62,589.87 100.00%

II. EQUITY AND LIABILITIES

EQUITY
(a) Equity share capital 719.54 1.15%
(b) Other equity 17668.11 28.23%
Shareholders' Equity 18387.65 29.38%
LIABILITIES
(1) NON-CURRENT LIABILITIES
(a) Financial liabilities
(i) Borrowings 14776.51 23.61%
(ii) Lease liabilities 522.24 0.83%
(iii) Other financial liabilities 854.74 1.37%
(b) Provisions 1769.74 2.83%
(c) Deferred tax liabilities (net) 198.59 0.32%
(d) Other non-current liabilities 269.58 0.43%
Total Non-Current Liabilities 18391.4 29.38%

(2) CURRENT LIABILITIES

(a) Financial liabilities
(i) Borrowings 6,121.36 9.78%
(ii) Lease liabilities 83.30 0.13%
(iii) Trade payables
(a) Total outstanding dues of micro
and small enterprises 101.56 0.16%
(b) Total outstanding dues of
creditors other than micro and small enterprises 8,000.69 12.78%
(iv) Acceptances 2,741.69 4.38%

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
 (v) Other financial liabilities 5,976.35 9.55%
(b) Provisions 1,406.75 2.25%
(c) Current tax liabilities (net) 31.49 0.05%
(d) Other current liabilities 1,347.63 2.15%
Total Current Liabilities 25,810.82 41.24%

TOTAL EQUITY AND LIABILITIES 62,589.87 100.00%

• What is the proportion of Current Assets and Non-Current Assets?

Answer: Current Assets = 21.68%, Non-Current Assets = 78.32%

• What is the proportion of Owners’ Equity and Outsiders’ Liabilities?

Answer: Owners’ Equity = 29.38%, Outsiders’ Liabilities =70.62%

1(e) Prepare a Common-Size Income Statement for the year 2018-19 by using the Total Income as a
base? What is the proportion of Profit for the Year out of the Total Income?
Solution: Below given is the Common Size income statement.

Statement of Profit and Loss of Tata Motors Limited for

(Rs. in Crores)
the year ending on March 31,
Common
FY19 size IS for
FY19
Revenue from operations
Revenue Rs.68,764.88 95.83%
Other operating revenue Rs.437.88 0.61%
Total revenue from operations Rs.69,202.76 96.44%
Other Income Rs.2,554.66 3.56%
Total Income Rs.71,757.42 100.00%

Expenses
a) Cost of materials consumed Rs.43,748.77 60.97%
b) Purchases of products for sale Rs.6,722.32 9.37%
c ) Changes in inventories of finished goods, work-in-
Rs.144.69 0.20%
progress and products for sale
d) Employee benefits expense Rs.4,273.10 5.95%
e) Finance costs Rs.1,793.57 2.50%
f) Foreign exchange loss (net) Rs.215.22 0.30%
g) Depreciation and amortisation expense Rs.3,098.64 4.32%
h) Product development/Engineering expenses Rs.571.76 0.80%
i) Other expenses Rs.9,680.46 13.49%
j) Amount transferred to capital and other accounts (Rs.1,093.11) -1.52%
Total Expenses Rs.69,155.42 96.37%
0.00%
Profit/(loss) before exceptional items and tax Rs.2,602.00 3.63%

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
 Exceptional items 0.00%
a) Employee separation cost Rs.4.23 0.01%
b) Write off/(reversal) of provision/ impairment of capital
Rs.180.66 0.25%
work-in-progress and intangibles under development (net)
c ) Provision for loan given to/investment in subsidiary
Rs.241.86 0.34%
companies/joint venture
d) Profit on sale of investment in a subsidiary company (Rs.332.95) -0.46%
e) Provision for impairment of Passenger Vehicle Business -
f) Provision for Onerous Contracts -
g) Others Rs.109.27 0.15%
0.00%
Profit/(loss) before tax Rs.2,398.93 3.34%
Tax expense (net) 0.00%
a) Current tax Rs.294.66 0.41%
b) Deferred tax Rs.83.67 0.12%
Total tax expense Rs.378.33 0.53%
0.00%
Profit/(loss) for the year Rs.2,020.60 2.82%

The profit for the year is 2.82% out of the total income for the year

Question 2: Ten-Year Highlights of the important financial indicators of Colgate-Palmolive (India)

Limited are given. Click here to download the file
Using the above Ten-Year Financial Data of Colgate-Palmolive (India) Limited, you are required to
calculate the Index Number Trend by taking the FY 2010-11 as the base year, you are required to fill
up the given table.
Answer: The data for 2019-20 was filled using the index number trend technique

2010-
Particulars 2019-20
11
Sales 100
193.65
Net Profit After Tax 100
202.81
Net Fixed Assets 100
451.40
SHAREHOLDERS’
100
FUNDS 415.09
Dividend Per Share
100
(Rs.) 127.27

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
Question 3: The Balance Sheet information has been extracted from the annual reports of Parent
Company Limited and Subsidiary Company Limited. Parent Company Limited is holding 75% shares
of Subsidiary Company Limited. you are required to prepare a consolidated Balance Sheet of the
Group.

Solution:

Balance Sheet as on March 31, 2020

Parent Subsidiary
Consolidated
Particulars Company Company
BS
Limited Limited
ASSETS
Non-current assets
Property, plant and
equipment
Land Rs.1,000 125.00 1125.00
Plant Rs.750 50.00 800.00
Vehicles Rs.500 50.00 550.00
Rs.2,250 225.00 2475.00
Investment of 40 Lakhs
shares of Subsidiary
Rs.375 0.00
Company Limited (75%
Shares)
Goodwill 210.00
Total Non-Current
Rs.2,625 225.00
Assets 2685.00
Current assets 0.00
Inventories Rs.500 200.00 700.00
Trade receivables Rs.750 100.00 850.00
Cash Rs.250 75.00 325.00
Other Current Assets Rs.125 45.00 170.00
Total Current Assets Rs.1,625 420.00 2045.00
0.00
Total assets Rs.4,250 645.00 4730
EQUITY AND
LIABILITIES
Equity
Called-up share capital
Rs.1,750 125.00
(Rs. 10 per share) 1750.00
Share premium
Rs.250 0.00
account 250.00
Retained earnings Rs.875 95.00 875.00
Minority Interest 55
Total Equity Rs.2,875 220.00 2930.00
Non-current liabilities 0
Debentures and Loans Rs.650 130.00 780.00
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
 Other Non-Current
Rs.250 145.00
Liabilities 395.00
Total Non-Current
Rs.900 275.00
Liabilities 1175.00
Current liabilities
Trade payables Rs.425 130.00 555.00
Short-Term Borrowings Rs.50 20.00 70.00
Total Current
Rs.475 150.00
Liabilities 625.00

Total equity and

Rs.4,250 645.00
liabilities 4730

Question 4: The Cash Flow Statement of Larsen & Toubro Limited taken from their Annual Reports
are given in the EXCEL File. Analyze the Cash Flow Statement and answer the following questions
with proper justification.
4(a) Can you say that Larsen & Toubro Limited is a CASH COW?
Answer: It is not a cash cow as the cash produced is not steady and is declining and is
negative in 2019. Investment activity and financing activity has high outflow of cash than it
produced through operations
4(b) Give two important reasons why Larsen & Toubro Limited is having negative cash flows from
Operating Activities in spite of the fact the Company has made a positive profit during the FY 2019-
20.
Answer: The important reasons why Larsen & Toubro Limited is having negative cash flows from
Operating Activities in spite of the fact the Company has made a positive profit during the FY 2019-
20.
a) Increase in trade and other receivables
b) Increase in inventories
c) Direct Paid Tax

4(c) By studying the cash flows pattern of the Company over a period of 5 years, can you conclude
that its financial health is improving?
Answer: No, we cannot conclude that financial health of L&T is improving. Operating cashflows have
declined over the last three few years, turning negative in FY2019-20. Even the investing and
financing activities show a net cash outflow in most years except for a cash inflow in financing
activities in FY2019-20, which is only due to borrowings. Despite declining cash flows L&T has been
paying huge dividends funded through borrowings.

Question 5: The Financial Statements of NTPC Limited taken from their Annual Reports are given
in the EXCEL File. Analyze NTPC Limited Financial Statements and answer the following questions
using different tools of Financial Statement Analysis. Please try to share at least 2 different
analyses for each question

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
5(a) Is NTPC LTD. growing?
Answer: Based on Revenue, Assets, book value and PBT we can say it’s growing as its
increasing year on year. PAT is decreasing because of tax component not because of
operating activity because of which we can conveniently say that NTPC is growing
5(b) Is NTPC LTD. having sufficient liquid resources to meet its liabilities as and when they arise?
Answer: As the liquidity and quick ratios is below 1 for past 5 years we can say that the NTPC
doesn’t have sufficient fund to meet its liabilities:

Liquidity ratio 0.9369531 0.7850195 0.8626603 0.7611688 0.8898849

Quick Ratio 0.7162148 0.6052159 0.7203171 0.6168609 0.6942866

5(c) Is NTPC LTD. making sufficient profits?

Answer:

Although company is generating profit Year on year but above analysis represents that operating
profits of the company is decreasing. Profit for shareholders is also decreasing. Return on
investment is also decreasing. Overall profitability of the company is decreasing

5(d) Is NTPC Limited using its assets – Long term as well as short term – effectively and efficiently?
Answer: Long term: effectively and efficiently in long term is going down over years which in is
indicated through decline in asset turnover ratios. This can be improved.

Total Assets Turnover

0.33 0.34 0.33 0.32 0.31
Ratio
Fixed Assets Turnover
0.79 0.8 0.71 0.74 0.64
Ratio

Short term: Below table shows that in short term also going down recently.

Inventory Turnover 6.25 7.31 8.19 6.91 5.31

Current Assets
2.42 2.79 2.32 2.19 2.06
Turnover
Inventory Conversion
58.42 49.91 44.55 52.81 68.7
Period (Days)
Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.
5(e) Is NTPC LTD. solvent?
Answer: 5 Technically company is Solvent as Total assets are greater the Total
liabilities of the company.
The following solvency ratios analysis is of the company to elaborate the solvency
year-on year

31-Mar- 31-Mar- 31-Mar- 31-Mar- 31-Mar-

16 17 18 19 20
Leverage ratio:
Debt to equity ratio (Long term 98% 106% 112% 117% 137%
debt/equity)
Equity multiplier (Total asset/equity) 2.4 2.5 2.6 2.7 2.9
Total debt to equity 133% 143% 154% 169% 186%

Coverage ration
Net worth 91293.7 96231.2 101777.77 107408.17 113569.44
3
Interest ratio (EBIT/Interest paid) 1.60 1.75 1.57 1.37 1.38
Cash flow from operating activities/total 19.74% 14.74% 12.31% 8.92% 10.44%
liabilities

Leverage ratio is increasing and even though net worth is increasing but there is
decline in interest ratio & cash flow from operating activities to total liabilities which
ultimately decreasing the coverage ratio. Therefore, company’s solvent position is
deteriorating.

5(f) What are the driving forces behind the profitability of NTPC LTD.?
Answer: Key factors driving Profitability are:

1. % of Increasing Revenue is higher

2. Minimal increase in Fuel Cost
3. Minimal increase in Employee cost
4. Can be because of increasing asset

Proprietary content. ©Great Learning. All Rights Reserved. Unauthorized use or distribution prohibited.