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Financial Accounting & Analysis
Jun 2025 Examination
Q1. A small manufacturing company, Horizon Industries, has experienced rapid growth and needs to organize its accounting records. The company currently tracks transactions informally using spreadsheets. The owner has hired you as a consultant to implement proper accounting procedures. Describe the sequential steps Horizon
Industries should follow to establish a formal accounting system. Explain the purpose and role in generating financial statements. Additionally, identify which source documents should be maintained for different types of transactions. (10 Marks)
Q2. Meera Sharma recently decided to pursue her passion for landscaping by starting Green Valley Landscaping Services in Pune, Maharashtra. After years of working for a large landscaping company, she’s using her expertise and savings to establish her own business in a growing residential area. The company offers residential and commercial landscaping services including lawn maintenance, garden design, irrigation system installation, and seasonal clean-up. Meera has rented a small office space with an attached storage area for equipment and supplies near Koregaon Park. As she begins operations, she needs to properly track all business transactions to understand her financial position and plan for future growth.
Explain the accounting equation and its fundamental importance in financial accounting. Analyze the following six transactions for Green Valley Landscaping Services and show how each affects the accounting equation:
- Meera invested Rs.15,00,000 cash to start the business
- Purchased equipment worth Rs.5,00,000, paying Rs.2,00,000 in cash and financing the remainder
- Provided landscaping services for Rs.2,75,000, receiving cash immediately
- Paid Rs.75,000 for monthly rent
- Purchased supplies for Rs.45,000 on account from Ganesh Garden Supplies
- Paid Rs.30,000 toward the equipment loan to State Bank of India (10 Marks)
Q3 (A) Vindhya Technologies Ltd, a mid-sized software development company based in Bangalore, specializes in enterprise solutions and mobile applications. Below are selected items from the company’s financial statements for the years ended March 31, 2024 and 2023 (all figures in Rs. lakhs):
Balance Sheet Items:
– Current Assets (2024): Rs.480; (2023): Rs.360
– Cash and Cash Equivalents (2024): Rs.180; (2023): Rs.140
– Current Liabilities (2024): Rs.220; (2023): Rs.190
– Total Assets (2024): Rs.1,200; (2023): Rs.950
– Total Liabilities (2024): Rs.500; (2023): Rs.400
– Inventory (2024): Rs.60; (2023): Rs.45
Income Statement Items:
– Net Sales (2024): Rs.1,500; (2023): Rs.1,250
– Net Profit After Tax (2024): Rs.225; (2023): Rs.170
– Cost of Goods Sold (2024): Rs.900; (2023): Rs.780
Additional Information:
– Average Total Assets for 2024: Rs.1,075
– Average Inventory for 2024: Rs.52.5
– Shareholders’ Equity (2024): Rs.700; (2023): Rs.550
Analyze Vindhya Technologies Ltd’s financial performance by calculating and interpreting the Profitability and Liquidity categories of financial ratios. Calculate and interpret two ratios for each category. (5 Marks)
Q3(B) Analyze Vindhya Technologies Ltd’s financial performance by calculating and interpreting the Solvency and Efficiency categories of financial ratios. Calculate and interpret two ratios for each category. (5 Marks)
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