Financial Accounting for Managers - CIA 1

By,
Group 8 - 1st year MBA - Section I
Submitted to,
Prof. Latha Ramesh
Group Members and their contributions:
1. Reeba
2. Naveen Chowdary
3. Toshi Agarwal
4. Saurab
5. Manasa
6. Nitish Agarwal
- Analyse the concepts and assumptions adopted by ACC Ltd., and Sun Pharmaceuticals Industries Ltd.,
for 2012 and 2013

1. Introduction
In the following report we will be discussing about the financial statements and inference of the
following two companies - ACC LTD and Sun Pharmaceuticals Industries Ltd.
Sun Pharmaceuticals Industries LTD It was established by MrDilipShangvi in 1983 in Vapi (Southern
Gujarat). It is a pharmaceutical company headquartered in Mumbai, that manufactures and sells
pharmaceutical formulations and active pharmaceutical ingredients(APIs) (like
steroids,anticancers)primarily in India and US. The company offers formulations in various therapeutic
areas such as cardiology ,psychiatry , neurology,gastroenterology and diabtology.
Sun Pharma's Board of Directors include:

Israel Makov: Chairman

Dilip Shanghvi: Managing Director

Sudhir V. Valia: Executive Director

Sailesh T. Desai: Executive Director

Hasmukh S. Shah: Non Executive Independent Director

Keki M. Mistry: Non Executive Independenst Director

Ashwin Dani: Non Executive Independent Director

S. Mohanchand Dadha: Non Executive Independent Director

Rekha Sethi: Non Executive Independent Director

ACC Limited (Formerly The Associated Cement Companies Limited) is one of the largest producers of
cement in India. It's registered office is called Cement House. It is located on Maharishi Karve
Road, Mumbai. The stock price of the company, contributes in calculating BSE Sensex.
The management control of company was taken over by Swiss cement major Holcim in 2004. On 1
September 2006 the name of The Associated Cement Companies Limited was changed to ACC Limited.
The company has the honour of being the only cement company to get "Superbrand" status in India.
History of ACC Ltd.:
In 1936 ten cement companies belonging to Tatas, Khataus, Killick Nixon and F E Dinshaw groups
merged to form a single entity, The Associated Cement Companies. Sir Nowroji B Saklatvala was the first
chairman of ACC. The first board of directors had some prominent industrialists J R D Tata, Ambalal

Sarabhai, Walchand Hirachand, Dharamsey Khatau, Sir Akbar Hydari, Nawab Salar Jung Bahadur and Sir
Homy Mody.
Current Board of Directors of ACC Ltd.:
Mr. N. S. Sekhsaria: Chairman
Mr. Bernard Terver: Deputy Chairman
Mr. Kuldip K Kaura: Chief Executive Officer & Managing Director
Mr. Bernard Fontana: Director
Mr. M L Narula: Director
Mr. Shailesh Haribhakti: Director
Mr. Aidan Lynam: Director
Mr. Sushil Kumar Roongta: Director
Mr. Ashwin Dani: Director
Mr. Farrokh K. Kavarana: Director
Mr. Vijay Kumar Sharma: Director
Mr. Arunkumar Ramanlal Gandhi: Director
Mrs. Falguni Nayar: Director
Before we get into the detailed analysis of the financial reports of the two companies, let us discuss the
importance of financial statements and the limitations of the statements, if any.

2. Analysis of Financial Statements of ACC Limited and Sun Pharmaceuticals

Limited:
1. Auditors and the main crux of the auditing reports:
a) ACC Limited:
AUDITORS :S.R.Batliboi & Co.
Chartered accountants
Firm reg.no.301003E
Ravi Bansal
(partner)
Audit Report - Analysis:
Annual report was audited as at 31 December, 2012 and 2013, respectively, which includes the
balance sheet, the statement of profit and loss and the cash flow statement for the financial year
ended on 31 December, 2012 and 31st December, 2013 respectively.
The responsibility of auditors is to express their opinion on financial statement.
Includes assessing of accounting principles used and significant estimates made by the
management.

 Audit is done according to the accounting standards, generally accepted in India and in agreement
with the book of accounts.
Before presenting the financial statement for the financial year on 31 December, 2012 and 2013,
they were approved by the Board of Directors.
Following the proper book of accounts as required by law, accounting principles, generally
accepted in India and Companies act, 1956 were taken into consideration for the financial
statement.
The company has neither granted nor taken any loans, secured (or) unsecured from companies,
firms (or) other parties.
The company is not dealing in (or) trading in shares, securities, debentures and other investments,
not given guarantee for loans taken by others from banks (or) financing companies.
No funds have been raised on short-term basis and used for long-term investment.
Physical verification of inventory at reasonable intervals during the FY by the management.
Company maintained full records of fixed assets and fixed assets disposed off, were not included
in assets, which didnt affect the going concern of company.
Maintained the account of arrangements and contracts made and also the dues and disputes
pending at court were mentioned clearly.
No material fraud was done on company and no fraud was done by the company during financial
year.
b) Sun Pharmaceuticals Industries Limited:
Auditors:
Deloitte Haskins & sells
Chartered accountants
Firm reg.no.117366W
Rajesh.K.Hiranandani
(partner)
Audit Report - Analysis:

Annual report was audited as at 31 March, 2012 and 2013 respectively, which includes the
balance sheet, the statement of profit and loss and the cash flow statement for the financial year
ended on 31 March, 2012 and 31st March 2013 respectively.
The responsibility of auditors, to express their opinion on financial statement.
Includes assessing of accounting principles used and significant estimates made by the
management.
Audit is done according to the accounting standards, generally accepted in India and in agreement
with the book of accounts.

Before presenting the financial statement for the financial year on 31 March, 2012 and 2013, they
were approved by the Board of Directors.

 Following the proper book of accounts as required by law, accounting principles, generally
accepted in India and Companies act, 1956 were taken into consideration for the financial
statement.

The company has neither granted nor taken any loans, secured (or) unsecured from companies,
firms (or) other parties.

The company is not dealing in (or) trading in shares, securities, debentures and other investments,
not given guarantee for loans taken by others from banks (or) financing companies.

No funds have been raised on short-term basis and used for long-term investment.
Physical verification of inventory at reasonable intervals during the FY by the management.
Company maintained full records of fixed assets and fixed assets disposed off, were not included
in assets, which didnt affect the going concern of company.

Maintained the account of arrangements and contracts made and also the dues and disputes
pending at court were mentioned clearly.
No material fraud was done on company and no fraud was done by the company during financial
year.

2. The financial statements were presented by:

3. Growth Rate of ACC Ltd., and Sun Pharma Ltd., in terms of their revenue and profit:
4. Break up of equity and outside liabilities of ACC Ltd., and Sun Pharma Ltd.,:
5. Cash position and the breakup of the activities affecting the cash flow:
Cash flow statement is released by the company to understand the cash flow in the companys activities.
Cash flow statements are made for the end of year.
Three major cash flows are recorded in the cash flow statements
CASH FLOW FROM OPERATING ACTIVITIES
CASH FLOW FROM INVESTING ACTIVITIES
CASH FLOW FROM FINANCING ACTIVITIES

All the transactions related to operating activities are entered in this category. Net profit from profit
and loss statement is based on accrual concept i.e. we record revenues and expenses when earned or
incurred, although we may not have received or paid them at all.

Depreciation, amortization, and provision for doubtful debts do not reflect cash outflows for both
current and future periods. Under this category the following activities are recorded.

Thus, the net profit, we recorded, will not indicate the net cash flow from operations.

Therefore, net cash flow from operating activities is done by undoing accrual accounting adjustments
cash system.

AACRUAL SYSTEM

CASH SYSTEM

ELIMINATE
NON-CASH
REVENUE

REVENUE

NET CASH FLOW

FROM OPERATING
ACTIVITIES

NET
PROFIT

EXPENSES

ELIMINATE
NON-CASH
EXPENSES

There are two methods to calculate net cash flow from operating activities:
Direct method and indirect method

DIRECT METHOD:

Cash received from customers

Cash paid to suppliers and employees
Cash generated from operations
Income tax paid
INDIRECT METHOD:
PROFIT BEFORE INCOME TAX
Adjustments to reconcile net profit to net cash flow from operating activities:

Depreciation and amortization

Provision for doubtful debts
Foreign exchange gain/loss
Interest/dividend income
Interest expense
Gain/loss on sale of fixed assets/investments
Operating profit before working capital changes
Adjustments for changes in:
Trade receivables/bills receivable
Inventories
Prepaid expenses
Trade payables or bills payable
Cash generated from operations
Income tax paid
NET CASH FLOW FROM OPERATING ACTIVITIES
The following cash flow from operating activities is reported in indirect method.
COMPARISION OF CASH FLOW FROM OPERATING ACTIVITIES OF SPIL
SPIL

2013

2012

2011

(in million

(in

(in

rupees)

million

million

43,148.9

rupees)
33,553.6

rupees)
20,359.5

Depreciation and amortisation expense

3,361.7

2,911.6

2,048.5

(Profit)/Loss on sale of fixed assets (net)

(2.4)

95.8

12.0

Finance costs

431.6

282.0

738.8

Interest income

(2,368.9)

(1,977.6)

(2,232.4)

Dividend income

(24.3)

(0.2)

(0.0)

Net gain on sale of investments

(1,118.1)

(2,415.2)

(427.5)

Provision for doubtful trade receivables or advances

116.8

39.5

2.9

PROFIT BEFORE TAX

ADJUSTMENTS FOR:

Net (gain)/loss on cancellation of forward exchange contracts

190.7

(50.1)

(75.6)

Net foreign exchange loss/(gain)

1,075.6

2,225.4

(1,778.5)

OPERATING PROFIT BEFORE WORKING CAPITAL

44,811.6

34,664.8

18,647.7

CHANGES
ADJUSTMENTS FOR (INCREASE)/DECREASE IN
OPERATING ASSETS:
Inventories

(3,902.2)

(5,975.0)

(813.5)

Trade receivables

(6,479.7)

(9,308.4)

3,697.3

Loans and advances

(673.8)

(1,043.4)

(345.9)

Other assets

(133.5)

92.8

(485.8)

OPERATING LIABILITIES:
Trade payables

2,142.4

2,991.1

688.2

Other liabilities

(1,770.1)

1,391.1

557.6

Provisions

10,101.6

1,799.3

1,578.6

CASH GENERATED FROM OPERATIONS

44,363.3

24,612.3

23,524.2

Net income tax paid

(10,734.8)

(2,267.7)

(693.2)

NET CASH FLOW FROM OPERATING ACTIVITIES

33,628.5

22,344.6

22,831.0

ADJUSTMENTS FOR INCREASE/(DECREASE) IN

(A)
COMPARISION OF CASH FLOW FROM OPERATING ACTIVITIES OF ACC
ACC

PROFIT BEFORE TAX

2013

2012

2011

(RS

(RS

(RS

CRORE)
1,213.64

CRORE)
1,440.99

CRORE)
1,505.29

583.79
11.93
3.93
17.86
(61.27)

568.90
335.38

510.04
-

(6.11)
(86.11)
(171.05)

11.06
(36.62)
(30.18)
(124.21)

ADJUSTMENTS FOR:
Depreciation and amortisation expense
Exceptional item
Impairment loss
Loss/(profit) on sale/write off of fixed assets (net)
Provision for diminution in the value of investment
Gain on sale of current investments
Dividend income
Interest income

(157.86)

Finance costs
Provision for doubtful debts and advances (net)
Capital spares consumed
Miscellaneous expenditure written off
OPERATING PROFIT BEFORE WORKING

51.67
7.53
23.22
3.44
1,697.88

114.65
(3.55)
36.36
3.47
2,232.93

96.91
(28.64)
14.76
3.67
1,922.08

(102.77)
12.09
(18.24)
(59.57)
(0.29)
(134.45)

(38.82)
(21.63)
(44.31)
(41.91)
(0.26)
(109.28)

(45.68)
(186.90)
28.33
(24.41)
0.35
(2.30)

OPERATING LIABILITIES:
Trade payables

(17.89)

(152.76)

132.96

Other current liabilities

79.26

(84.19)

112.09

Other long-term liabilities

25.65

5.56

33.86

Short-term provisions

20.29

6.29

2.19

Long-term provisions

(3.26)

31.66

19.82

CASH GENERATED FROM OPERATIONS

1,498.70

1,783.28

1,992.39

income tax paid ( NET OF REFUNDS)

(430.10)

(206.42)

(416.41)

NET CASH FLOW FROM OPERATING

1,068.60

1,576.86

1,575.98

CAPITAL CHANGES
CHANGES IN WORKING CAPITAL:
ADJUSTMENTS FOR (INCREASE)/DECREASE IN
OPERATING ASSETS:
Trade receivables
Inventories
Short term Loans and advances
Long term loans and advances
Other current assets
Other non-current assets
ADJUSTMENTS FOR INCREASE/(DECREASE) IN

ACTIVITIES (A)

COMPARISION OF CASH FLOW FROM INVESTING ACTIVITIES OF SPIL

Investing activities of the current period are computed by analysing the changes in the balance sheet
amounts for fixed assets and investments and considering the cash effects of the related transactions
of that period.

Investing activities involve purchases and sale of fixed assets and financial assets.

Interest and dividends received are also recorded under investing activities.

SPIL

2013

2012

2011

(RS

(RS

(RS

MILLION)
(8,454.5)

MILLION)
(7,129.1)

MILLION)
(4,218.5)

136.4

107.9

286.1

(10,194.1)
10,413.8
(156,719.0)
156,249.0

(7,798.2)
6,672.4
(131,751.0)
134,501.8

(9,036.7)
7,068.5
(123,186.1)
126,427.0

equivalents
Fixed deposits/margin money placed
Fixed deposits/margin money matured
Net (loss)/gain on cancellation of forward exchange

(30,119.3)
26,674.3
(190.7)

(22,637.2)
20,442.5
50.1

(18,884.3)
5,641.1
75.6

contracts
Acquisition of subsidiary
Interest received
Dividend received
NET CASH FLOW USED IN INVESTING

(16,414.6)
2,572.1
24.3
(26,350.5)

(2,740.4)
1,653.9
0.2
(8,627.1)

(4,689.3)
2,039.5
0.0
(18,477.1)

Capital expenditure on fixed assets, including

capital advances
Proceeds from sale of fixed assets
Short-term loans / inter corporate deposits
Given/placed
Received back/matured
Purchase of investments
Proceeds from sale of investments
Bank balances not considered as cash and cash

ACTIVITIES(B)
COMPARISION OF CASH FLOW FROM INVESTING ACTIVITIES OF ACC
ACC

2013

2012

2011

PURCHASE OF FIXED ASSETS

(RS CRORE)
(962.72)

(RS CRORE)
(572.17)

(RS CRORE)
(484.05)

advances)
Proceeds from sale of fixed assets
Gain on sale of current investments (net)
Purchase of non-current investments
Purchase of investments in subsidiary

7.30
61.27
-

16.40
86.11
(0.34)
(5.00)

36.73
36.62
(6.01)
-

company
Investment in bank deposits (having original

(119.30)

(0.13)

(0.10)

maturity for more than 3 months)

Dividend received from associates
Interest received
NET CASH USED IN INVESTING

6.59
166.53
(840.33)

3.09
164.13
(307.91)

2.24
125.96
(258.42)

(including capital work-in progress and capital

ACTIVITIES
Thus, the net cash used in investing activities is calculated by subtracting or adding the data as shown
above.

COMPARISION OF CASH FLOW FROM FINANCING ACTIVITIES OF SPIL

Cash flow from financing activities involve raising and repayment of capital and loans.

Cash inflows and outflows from financing activities are calculated by analysing changes in balance
sheet amounts for share holders equity and loan funds.

The cash effects of these transactions of that period are calculated.

SPIL
Proceeds from borrowings
Repayment of borrowings
Net increase/(decrease) in working capital

2013
141.8
(1,109.3)
219.0

2012
570.8
(521.6)
(1,097.8)

2011
22.0
(2,102.6)
(1,705.9)

borrowings
Proceeds from issue of shares to minority by

357.4

subsidiary
Payment to minority
Finance costs
Dividends paid
Tax on dividend
NET CASH FLOW USED IN FINANCIAL

(767.0)
(439.3)
(4,401.2)
(714.0)
(6,712.6)

(14.3)
(285.5)
(3,523.7)
(571.8)
(5,443.9)

(69.2)
(865.9)
(2,847.3)
(473.0)
(8,041.9)

ACTIVITIES (C)
NET INCREASE/(DECREASE) IN CASH AND

565.4

8,273.6

(3,688.0)

CASH EQUIVALENTS (A+B+C)

Cash and cash equivalents taken over on acquisition

1,607.3

5,473.9

of subsidiary
Cash or cash equivalents at the beginning of the

17,526.7

8,104.9

6,338.7

year
Effect of exchange differences on restatement of

991.7

1,148.2

(19.7)

foreign currency cash and cash equivalents

CASH AND CASH EQUIVALENTS AT THE

20,691.1

17,526.7

8,104.9

END OF THE YEAR

The net increase or decrease in cash and cash equivalents is calculated by adding the cash flow from
operating, investing and financial activities.

Cash and cash equivalents at the end of the year is calculated by

Cash and cash equivalents taken over on acquisition of subsidiary +Cash or cash equivalents at the
beginning of the year +Effect of exchange differences on restatement of foreign currency cash and cash
equivalents to net increase or decrease in cash and cash equivalents in the above statement.
COMPARISION OF CASH FLOW FROM FINANCING ACTIVITIES OF ACC

ACC

2013

2012

2011

(RS

(RS

(RS

Finance costs

CRORE)
(76.93)

CRORE)
(110.19)

CRORE)
(72.76)

Repayment of short-term borrowings

(78.03)

(1.62)

(9.93)

Repayment of long-term borrowings

(50.00)

(346.05)

(3.30)

Dividend paid

(560.20)

(522.88)

(585.05)

Dividend distribution tax paid

(95.72)

(85.28)

(97.42)

NET CASH USED IN FINANCING

(860.88)

(1,066.02)

(768.46)

NET INCREASE/(DECREASE) IN CASH AND

(632.61)

202.93

549.10

CASH EQUIVALENTS
Cash and cash equivalents at the beginning of the

3,155.50

2,952.57

2,303.47

year
Cash and cash equivalents at the end of the year

2,522.89

3,155.50

2,852.57

0.12

0.14

0.16

On current accounts

56.15

111.61

83.23

On deposit account

289.66

531.52

1,542.04

Earmarked for specific purpose

38.04

35.00

32.19

Cash and cash equivalents

383.97

678.27

1,657.62

Add: Investment in mutual funds

1,083.70

1,052.35

609.10

Add: Investment in certificate of deposits

955.22

1,324.88

585.85

Add: Deposit with HDFC Limited

100.00

100.00

CASH AND CASH EQUIVALENTS IN CASH

2,522.89

3,155.50

2,852.57

ACTIVITIES

Components of cash and cash equivalents:

Cash on hand
Balance with banks:

FLOW STATEMENT
Cash and cash equivalents at the end of the year is decreased in 2013 compared to that of 2012 and 2011.

3. Concepts and assumptions adopted by ACC Ltd., and Sun Pharmaceuticals

Ltd., while preparing the financial statements:
1. Going Concern Assumption: means that the company will continue to exist and operate indefinitely, or
at least for the next twelve months regardless of the change in ownership of the company. It is also known
as the continuing concern concept or continuity assumption. Because of this assumption, all assets and
liabilities are recorded in the Balance Sheet on the basis that the company will realize its assets, pay off its
liabilities and procure funds for financing its activities over the normal course of business.
2. Accrual Concept: states that all incomes and expenses belonging to the period must be recognized and
accounted for in that particular period, regardless of actual cash inflow or outflow. This concept proves
that cash collection is not the same as income and cash payments are different from expenses. The
accrual concept all provides an opportunity for firms to trade in credit or accept advances from clients for
future sales.
3. Accounting Entity Concept: states that each business enterprise is separate and distinct from its
owners, managers and employees of the business. The company has its own legal existence, set apart
from its stakeholders. Due to this concept, all personal transactions of owners, managers, employees and
other stakeholders in the business are kept separate from the company books of accounts. This why all
personal expenses met by a proprietor with company cash/bank/other assets are accounted for as
Drawings and deducted at the end of the financial year from profits earned. The Capital invested by the
owners is recorded as a liability because the business enterprise is liable to pay back this amount to its
owners.
4. Time Period or Periodicity Concept: states that, even though a business enterprise is expected to
survive for ever, the existing stakeholders need to analyse the financial position of the firm at regular
intervals in order to check the growth and development of their investments. This concept divides the
indefinite life of a firm into small, manageable and consistent time periods so that financial statements
can be drawn in order to study the current financial position, performance and cash flow scenario of the
given period. This time period is called an Accounting Period and is usually a 12 months period. But,
firms are now preparing monthly, quarterly and half yearly reports in order to study the short term and
immediate effects of their decisions.
5. Monetary Unit Assumption: states that all records must be maintained in terms of money, generally in
the currency of the country in which the business enterprise is located. The concept assumes that the
purchasing power of the currency is fixed and stable from the accounting point of view. It asks the
accounts to ignore the effect of inflation for accounting purpose. Therefore, this concept has two main
characteristics - Quantifiability and Stability of currency. Each element of the financial report should have
an accurate and quantifiable monetary value, if not, it should not be included in the financial reports.
The above stated concepts are the backbone of Financial Accounting and are religiously followed by both
ACC Ltd., and Sun Pharmaceuticals Ltd., while preparing their financial statements. These concepts have

helped in developing many other principles. Some of the principles followed by ACC Ltd., and Sun
Pharmaceuticals India Ltd., are as follows:
1. Matching Principle: states that income and expenses have to be matched accurately for any given
period. It means that the expenses recognized in a given period has to be matched with the related income
and the income recognized in a given period has to be matched with a related expense. This principle
assures that the debit and credit sides of each financial statement is balanced accurately. This concept also
allows us to calculate the profit/loss earned during a given period by determining the exact income and
expenditure.
2. Revenue Recognition Principle: this is a sublet of the Accrual concept, it states that revenue or income
needs to recognized and recorded when it is earned, regardless of when the monetary value is received. In
order words, income or revenue is recorded when the service is fully rendered to the client or when the
sale occurs, even though the money for the same is not received immediately.
3. Expense Recognition Principle: this is a sublet of the Accrual concept, it states that all expenses must
be recognized and recorded when they are incurred, regardless of when the monetary value is paid. In
order words, an expense is recorded when the benefit has been utilised, regardless of when payment is
made for the same.
4. Historical Cost Principle: states that all Assets and Liabilities must be accounted for at their original
monetary value/acquisition cost. Assets are depreciated consistently over its useful life and liabilities are
written off as and when they are cleared. If the assets and liabilities are recognised at their fair market
value, which fluctuates periodically, then there will be no consistency between the periodical financial
reports.

4. Similarities and Differences observed in the financial statements of ACC

Limited and Sun Pharmaceuticals Limited
Similarities:
1. Both the companies follow the Generally Accepted Accounting Principles while preparing the financial
statements.
2. Both ACC and Sun Pharma are governed by the Companies Act of 1956.
3. Both the companies follow the same concepts and assumptions of financial accounting (refer section 3)
4. Both ACC and Sun Pharma are manufacturing enterprises, therefore, purchase of raw materials,
inventories, work in progress form a significant part of their financial statements.

Differences:
1.

5. Conclusions and Learning

6. References and Bibliography:
http://www.accountingverse.com/

http://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(United_States)
http://pakaccountants.com/
http://learnfinancialaccounting.com/