FORMULA SHEET

CHAPTER 1: INTRODUCTION TO FINANCIAL ACCOUNTING

Balance Sheet Equation:

Assets = Liabilities + Owner’s Equity
Owner’s Equity = Assets – Liabilities

CHAPTER 8: CORPORATE FINANCIAL REPORTING

EVA = “Net Operating Profit after Taxes” – (Equity Capital X % Cost of Equity
Capital).

Market Value-Added = Company’s total Market Value – Capital Invested

(OR)

Market Value-Added = Market Value of equity – Book value of equity (OR)

EVA = (ROI – WACC) x Capital employed

*Market value of equity = Book value of equity + Present value of all future
EVA.

CHAPTER 9: CASH FLOW STATEMENT

Cash Collected from Debtors = Credit Sales + Decrease in Accounts
Receivable or - Increase in Accounts Receivable

Purchases = Cost of Goods Sold + Closing Stock - Opening Stock (OR)

Purchases = Cost of Goods Sold + Increase in Stock or - Decrease in Stock

Cash Paid to Suppliers = Purchases + Opening Balance of Creditors (Bills

Payable) - Closing Balance of Creditors (Bills Payable). (or)
Cash Paid to Suppliers = Purchases + Decrease in Accounts Payable or -
Increase in Accounts Payable

Cash Paid for Wages and Salaries = Wages and Salaries Expenses +
Opening Balance of Outstanding Wages and Salaries - Closing Balance of
Outstanding Wages and Salaries.

Rent Received = Rent Revenue + Opening Balance of Rent Receivable -

Closing Balance of Rent Receivable

Interest Paid = Interest Expenses + Opening Balance of Outstanding

Interest - Closing Balance of Outstanding Interest
1|Page Think CMA FMSM, Think Amit Talda Sir
Cash Paid for Insurance = Insurance Expenses + Closing Balance of
Unexpired Insurance - Opening Balance of Unexpired Insurance

CHAPTER 13: OVERVIEW OF COST

COST SHEET: ABSORPTION COSTING:

Particulars `
Opening Stock of Raw Materials
Add: Purchases (including Carriage Inwards, Transit
Insurance etc.)
Less: Closing Stock of Raw Materials
Direct Materials Consumed/Raw Materials
Consumed
Add: Direct Labour
Add: Direct Expenses

PRIME COST
Add: Factory Overheads
Add: Opening Stock of Work-in-Progress
Less: Closing Stock of Work-in-Progress

FACTORY COST/WORKS COST

Add: Administration Overheads

COST OF PRODUCTION
Add: Opening Stock of Finished Goods
Less: Closing Stock of Finished Goods

COST OF GOODS SOLD

Add: Selling & Distribution Overheads

COST OF SALES
PROFIT (Balancing Figure)
SALES

CHAPTER 15: BUDGET, BUDGETING & BUDGETARY CONTROL

Capacity Ratio = Actual Hours Worked/ Budgeted Hours × 100

Efficiency Ratio = Standard Hours for Actual Production/ Actual Hours

x 100

Activity Ratio= Standard Hours for Actual Production/ Budgeted Hours

x 100 (or)
2|Page Think CMA FMSM, Think Amit Talda Sir
Activity Ratio = Capacity Ratio x Efficiency Ratio

Calendar Ratio = Actual Working Days/ Budgeted Working Days

CHAPTER 16: RATIO ANALYSIS
BASED ON LIQUIDITY
Current Current Ratio = Current Assets ÷ Current Liabilities
Ratio
Where,
Current Assets = Inventories + Sundry Debtors + Cash &
Bank Balances + Loans & Advances + Disposable
Investments

Current Liabilities = Sundry Creditors + Short term loans

+ Bank Overdraft + Cash Credit + Outstanding Expenses
+ Proposed Dividends + Provision for Taxation +
Unclaimed Dividend

Standard Current Ratio is 2:1,

For banks ideal ratio is 1.33:1.

Quick Ratio Quick Ratio= Quick Assets ÷ Quick Liabilities

(or Acid Test
Ratio or Quick Assets = Current Assets – Inventories
Liquid Ratio)
Quick Liabilities = Current Liabilities – Bank Overdraft –
Cash Credit.

Ideal Ratio is 1:1

BASED ON LONG TERM SOLVENCY

Debt Equity Debt Equity Ratio = Total Debt ÷ Shareholder’s Equity
Ratio
Ideal Ratio is 2:1

Preference PSDR = EAT ÷ Preference Dividend

Dividend
Coverage Ideal Ratio is 7: 1
Ratio
Capital (Preference Share Capital + Debentures + Long term Loan)
Gearing Ratio ÷
(Equity Share Capital + Reserves & Surplus – Losses)

TURNOVER RATIOS

3|Page Think CMA FMSM, Think Amit Talda Sir

 Inventory ITR = Cost of Goods Sold ÷ Average Inventory
Turnover
Ratio *Average Inventory = (Opening Stock + Closing Stock) ÷ 2

Debtor DTR = Credit Sales ÷ Average Account Receivables

Turnover
Ratio
Creditor CTR = Credit Purchase ÷ Average Account Payables
Turnover
Ratio
Fixed Asset Fixed Asset Turnover Ratio = Net Sales ÷ Fixed Asset
Turnover
Ratio
Working WCTR = Net Sales ÷ Working Capital
Capital
Turnover
Ratio
BASED ON PROFITABILITY (%)
Gross Profit GP Ratio = Gross Profit ÷ Net Sales × 100
Ratio
Gross Profit = Sales – Cost of Goods Sold
Cost of Goods Sold = Opening Stock + Purchase – Closing
Stock

Net Profit Net Profit Ratio = Operating Profit÷ Net Sales × 100
Ratio
Return on Return on Equity = Profit after Tax ÷ Net worth × 100
Equity (ROE)
Return on ROI = Return ÷ Capital Employed × 100
Investment
(ROI) Where,
Return = Profit after Tax
+ Interest on long term debts
+ Provision for Tax
- Interest/Dividend from non-trade investments

Capital Employed = Equity Share Capital + Reserves and

Surplus + Preference Share Capital + Debenture and long
term loan - Miscellaneous Expenditure and Losses - Non
Trade Investments

OR
Capital Employed = Fixed Assets + Working Capital

4|Page Think CMA FMSM, Think Amit Talda Sir

 Return on ROA = Net Profit after Tax ÷ Total Assets × 100
Total Assets
(ROA)
Return on Return on Shareholders Fund = Net Profit after Interest &
Shareholder’s Tax ÷ Shareholders Fund
Fund or
Return on
Net Worth
BASED ON MARKET TEST
Earnings Per Earnings Per Share (EPS) =
Shares (EPS) Net profit available for equity shareholders
Number of ordinary shares outstanding

Dividend Per Dividend Per share = Total Profits distributed to equity

Share (DPS) shareholders ÷ Number of Equity Shares

Price P/E Ratio = Market Price per share ÷ Earnings per Share
Earnings
Ratio (P/E)
Pay Out Payout Ratio = Dividend Per Share ÷ Earnings per Share
Ratio
Dividend Dividend Yield Ratio = Dividend Per Share ÷ Market Price
Yield Ratio Per Share

CHAPTER 17: DECISION MAKING TOOLS

MARGINAL COSTING:
Contribution = Sales – variable Cost = fixed cost + profit

Profit Volume Ratio = Contribution ÷ sales (or)

Change in contribution ÷ change in sales

Fixed Cost
Break Even Point (`) = (or)
PV Ratio

Fixed Cost
Break Even Point (Units) = (or)
Contribution

Fixed Cost
Break Even Point (% Capacity)= (or)
Contribution at 1% Capacity

TOtal Fixed Cost of All Products

Overall Break Even Point (`) (of all products) =
Overall PV Ratio

Contribution = Sales × P/V Ratio%

5|Page Think CMA FMSM, Think Amit Talda Sir

Margin of Safety = Actual Sale – Break even sales (or)
Profit ÷ Contribution per unit (or)
Profit ÷ PV Ratio

Sale Value at Desired Profit = (Fixed Cost + Desired Profit) ÷ PV %

Variable Cost Ratio = Change in total cost ÷ Change in total Sales

Variable Cost per unit = Change in total cost ÷ Change in output

Contribution per unit = Change in Profit ÷ Change in output

Net profit = MOS × PV Ratio

COST SHEET UNDER MARGINAL COSTING

SALES
Less: Variable Cost
CONTRIBUTION
Less: Fixed Cost
PROFIT

Total Cost of Activity (cost pool)

Activity Cost Driver Rate =
Activity cost Driver

Assignment of Cost = Resources Consumed * Activity Cost Driver Rate

CHAPTER 19, 20, 22: VALUATION

GOODWILL VALUATION:
CAPITALISATION METHOD:
Goodwill = Normal Capital Employed – Actual Closing Capital Employed
*Normal Capital employed = Future Maintainable Profits/Normal Rate of
Return

SUPER PROFIT METHOD:

Goodwill = Super profit × No. of years for which Super Profit can be
maintained

*Super profit = Future maintainable profit minus (Actual Capital employed

× Normal rate of return)

ANNUITY METHOD:
Goodwill = Super profit × Annuity Factor

6|Page Think CMA FMSM, Think Amit Talda Sir

*Super profit = Future maintainable profit minus (Actual Capital employed
× Normal rate of return)

VALUATION OF SHARES:
ASSET APPROACH:
Total Assets (Excluding Fictitious Assets)
Less: Total Outside Liabilities
Net Assets Value (NAV)
(Or)
Share Capital
Add: Reserves & Surplus
Less: Fictitious Assets
Net Assets Value (NAV)

Net Assets Value

Value per Share =
No. of Shares

INCOME APPROACH:

BASED ON EARNINGS:
Net Operating Income
Value =
Capitalization Rate

Capitalization Rate = Discount Rate – Growth Rate

BASED ON YIELD (DIVIDEND)

Expected Dividend per share
Value =
Normal Rate of Dividend %

MARKET BASED APPORACH: PRICE EARNING MULTIPLE

Value = P/E × EPS

Market Price per share

P/E =
Earnings per share

Earnings available for Equity Shareholders

Earnings per Share =
No.of Equity Shares

FAIR VALUE OF EQUITY SHARES = (Value by Net Asset Method + Value

by Yield Method) ÷ 2

VALUATION OF PREFERNCE SHARES = (Total Yield per Share ÷ Normal

Rate of Yield) ×100

7|Page Think CMA FMSM, Think Amit Talda Sir

8|Page Think CMA FMSM, Think Amit Talda Sir