Module 02 · Exercises

Numbers for Kaveri Pumps are on the running-example page; use them exactly. Work every numerical problem by hand or in Python before opening the solutions.

Warm-up

E02.01 State the accounting equation and explain, with one example each, how a transaction can (a) change assets only, (b) change assets and liabilities, (c) change assets and equity.

E02.02 Define: accrual, deferred revenue, accrued expense, prepaid expense. Which side of the balance sheet does each sit on?

E02.03 List the five steps of Ind AS 115 revenue recognition.

E02.04 Which of the following are Schedule III line items and which are analyst conventions: revenue from operations, EBITDA, other income, EBIT, exceptional items, PBT, adjusted EPS, OCI?

E02.05 Name four things that are not on a company's balance sheet but affect its value.

E02.06 What are the three sections of the cash-flow statement, and in which does each of these appear under Kaveri's policy: interest paid on term loans; purchase of liquid mutual funds; dividends paid; lease payments; taxes paid?

E02.07 Define: CWIP, right-of-use asset, deferred tax liability, non-controlling interest, goodwill.

E02.08 Why is LIFO not permitted under Ind AS, and what difference does that make when comparing an Indian company with a US company that uses LIFO in a period of rising input prices?

Core (Kaveri Pumps unless stated)

E02.09 From the FY26 P&L lines (revenue 1,318.0; materials 858.0; employees 117.3; other expenses 160.8; D&A 47.8; other income 3.9; finance costs 17.0; exceptional 0; tax 30.5), compute EBITDA, EBIT, PBT, PAT, EBITDA margin, PAT margin, basic EPS (6.00 Cr shares) and diluted EPS (6.07 Cr).

E02.10 FY25 PAT was ₹97.4 Cr including a ₹14.0 Cr pre-tax gain on sale of land. Compute adjusted PAT and adjusted EPS at the 25.17% tax rate, and the underlying EPS growth into FY26.

E02.11 Roll forward other equity from FY25 (₹607.2 Cr) to FY26 using PAT ₹90.5 Cr, dividends paid ₹24.0 Cr and share-based payment ₹2.4 Cr. Check against the balance sheet.

E02.12 Roll forward gross block (FY25 ₹780.0 Cr; FY26 capex to PP&E ₹36.0 Cr; transfers from CWIP ₹14.0 Cr; no disposals) and accumulated depreciation (FY25 ₹295.1 Cr; FY26 PP&E depreciation ₹39.6 Cr). Compute FY26 net block and check against the balance sheet.

E02.13 Roll forward the lease liability from FY25 (₹16.7 Cr) with new leases ₹6.0 Cr, lease interest ₹1.4 Cr and lease payments ₹5.9 Cr. Explain where each item appears in the P&L and cash-flow statement.

E02.14 Rebuild FY26 CFO from PBT ₹121.0 Cr using: D&A 47.8; finance costs 17.0; other income 3.9; SBC 2.4; changes in inventories (188.1 vs 161.3), receivables (346.7 vs 269.7), other current assets (39.5 vs 35.2), payables (143.4 vs 132.3), other current liabilities (65.9 vs 58.6); current tax paid 29.5.

E02.15 Compute FY26 CFI from: capex on PP&E incl. CWIP 48.0; intangibles 4.0; change in current investments (15.0 vs 30.0); asset sale 0; interest received 3.9. Then compute CFF from: term-loan movement (92.0 vs 112.0); working-capital loans (96.0 vs 58.0); interest paid 15.6; lease payments 5.9; dividends 24.0. Verify that CFO + CFI + CFF equals the change in cash (32.5 vs 28.0).

E02.16 Restate Kaveri's FY26 CFO under the alternative Ind AS 7 policy of including interest paid and received in operating activities. What is CFF under that policy?

E02.17 Kaveri's effective tax rate: compute it for FY25 and FY26 and explain why it equals the statutory 25.17%. What would a 15% effective rate suggest?

E02.18 The deferred tax liability rose from ₹21.0 Cr to ₹22.0 Cr in FY26. Explain what timing difference produces a DTL for a manufacturer, and why the ₹1.0 Cr movement is a non-cash item in the CFO reconciliation.

E02.19 Working capital (fictional). A company has revenue ₹500 Cr, cost of goods ₹300 Cr, inventory days 60 (on COGS), receivable days 45 (on revenue), payable days 50 (on COGS). Compute inventory, receivables, payables and net trade working capital.

E02.20 Depreciation (fictional). An asset costs ₹120 Cr with a residual value of 5% and an 8-year life. Compute year-1 depreciation under straight-line and under 25% written-down value; and year-2 under WDV. Which method reports higher early profit?

E02.21 Deferred tax (fictional). Book profit ₹100 Cr; book depreciation ₹10 Cr; tax depreciation ₹15 Cr; tax rate 25%. Compute current tax, total tax expense, the deferred tax charge and the direction of the DTL.

E02.22 Ind AS 116 (fictional). A five-year lease has annual rent of ₹12 Cr paid in arrears; the incremental borrowing rate is 8%. Compute the initial lease liability and ROU asset, year-1 interest and year-1 amortisation (straight line), and show the effect on EBITDA, EBIT and PBT in year 1 compared with treating the rent as an operating expense.

E02.23 Revenue recognition. Kaveri sells a solar pumping system to a state agency for ₹5 lakh: the pump (delivered in March), installation (completed in April), and a two-year maintenance contract. Under Ind AS 115, how should revenue be allocated and when recognised, and which balance-sheet items arise at 31 March?

E02.24 Consolidation. A parent owns 80% of a subsidiary with revenue ₹200 Cr and PAT ₹20 Cr, and 30% of an associate with PAT ₹50 Cr. Show how each appears in the consolidated revenue, PAT and NCI lines.

E02.25 Nirmal Finance. From the FY26 P&L (interest income 1,073.2; interest expense 442.1; fees 50.8; opex 241.3; credit cost 120.6; tax 80.5), compute NII, PPOP, PBT, PAT, NIM on average loans (5,780 → 6,920), cost-to-income, credit cost as % of average loans, RoA on average assets (6,229.1 → 7,433.7) and RoE on average equity (1,485.8 → 1,695.3).

E02.26 Kaveri's FY26 quarterly PATs are 26.7, 12.7, 17.1 and 34.0. Show that they sum to the annual figure and explain why Q2 is the weakest quarter.

Stretch

E02.27 A company changes its revenue policy for long-term contracts from completion to percentage-of-completion. Describe the effect on revenue, receivables/unbilled revenue and CFO in the year of change, and what disclosure Ind AS 8 requires.

E02.28 Two companies have identical cash flows; one capitalises ₹30 Cr of development cost a year (amortised over 5 years), the other expenses it. Compare their EBITDA, EBIT, PAT, CFO, CFI and free cash flow in year 1 and in steady state (year 6 onward).

E02.29 Explain why a company's consolidated cash can be ₹500 Cr while it cannot pay a dividend, and what the standalone statements would show.

E02.30 Kaveri's related-party purchases were ₹89.2 Cr in FY26. Where do they appear in each statement, what does Ind AS 24 require to be disclosed, and what does "arm's length" mean in that note?

E02.31 Using the running-example page, list every FY26 item you would classify as a choice (estimate or policy) rather than a fact, and estimate the PAT effect of moving each to the conservative end of its range.

Real-world task

E02.32 Download the latest annual report of any Nifty 500 manufacturer. Rebuild EBITDA (excluding other income), EBIT, PBT and PAT from the face of the consolidated P&L; then rebuild CFO from PBT using the cash-flow statement's adjustments. Note every line where the company's presentation differs from Kaveri's (interest classification, exceptional items, other operating income).

E02.33 For the same company, roll forward PP&E (gross block, accumulated depreciation), leases and other equity from the notes, and reconcile to the balance sheet. Record any gap and its explanation (OCI? disposals? FX?).

E02.34 Find the company's tax reconciliation note and explain every reconciling item between the statutory rate and the effective rate.