Advertisements
Advertisements
Questions
State the objectives of 'Analysis of Financial Statements'.
State any one objective of financial statements analysis.
Advertisements
Solution 1
Objectives of Analysis Financial Statements:-
The following are the various objectives for preparing financial statements
It enables the conduct of meaningful comparisons of financial data. It provides better and easy
understanding of the changes in the financial data over time.
It helps in designing effective plans and better execution of plans by enabling control and checks over the use of the financial resources.
Analysis of Financial Statements helps to know the earning capacity and profitability of a business firm. It also measures the efficiency of the business operations.
Solution 2
Analysis of Financial Statements helps to know the profitability of the business with respect to sales and investments.
APPEARS IN
RELATED QUESTIONS
What is meant by 'Financial Statements' of a company?
'Good Blankets Ltd.' are the manufacturers of woollen blankets. Blankets of the company are exported to many countries. The company decided to distribute blankets free of cost to five villages of Kashmir Valley destroyed by the recent floods. It also decided to employ 100 young persons from these villages in their newly established factory at Solan in Himachal Pradesh. To meet the requirements of funds for starting its new factory, the company issued 50,000 equity shares of Rs 10 each and 2,000 8% debentures of Rs 100 each to the vendors of machinery purchased for Rs 7,00,000. Pass necessary journal entries for the above transactions in the books of the company. Also, identify anyone value which the company wants to communicate to the society.
'Panipat Blankets Limited' are the manufacturers and exporters of blankets. The company decided to distribute 1,000 blankets free of cost to five villages of Kashmir which had been damaged by the floods. It also decided to employ 100 young persons from these villages in their newly established factory at Ludhiana in Punjab To meet the requirements of funds for its new factory, the company issued 1,00,000 equity shares of Rs 10 each and 2,000, 9% debentures of Rs 100 each to the vendors of machinery purchased for Rs 12,00,000.
Pass necessary journal entries for the above transactions in the books of the company. Also, identify anyone value which the company wants to communicate to the society.
Financial statements are prepared following the consistent accounting concepts, principles, procedures and also the legal environment in which the business organisations operate. These statements are the source of information on the basis of which conclusions are drawn about the profitability and financial position of a company so that their users can easily understand and use them in their economic decisions.
From the above statement identify any two values that a company should observe while preparing its financial statements. Also, state under which major headings and sub-headings the following items will be presented in the Balance Sheet of a company as per Schedule III of the Companies Act, 2013:
(i) Calls-in-arrears
(ii) Calls-in-advance
(iii) Gain on reissue of forfeited equity shares
(iv) Trade payables to be settled beyond 12 months from the date of Balance Sheet
Long Answer Question
Explain the process of preparing income statement and balance sheet.
Show the following items in the balance sheet as per the provisions of the Companies Act, 2013 in Schedule III:
| Particulars | Rs. | Particulars | Rs. |
| Preliminary Expenses | 2,40,000 | Good will | 30,000 |
| Discount on issue of shares | 20,000 | Loose tools | 12,000 |
| 10% Debentures | 2,00,000 | Motor Vehicles | 4,75,000 |
| Stock in Trade | 1,40,000 | Provision for tax | 16,000 |
| Cash at bank | 1,35,000 | ||
| Bills receivable | 1,20,000 |
Prepare a balance sheet of Black Swan Ltd., as at March 31, 2017 form the following information:
| General Reserve | : | 3,000 |
| 10% Debentures | : | 3,000 |
| Statement of Profit & Loss | : | 1,200 |
| Depreciation on fixed assets | : | 700 |
| Gross Block | : | 9,000 |
| Current Liabilities | : | 2,500 |
| Preliminary Expenses | : | 300 |
| 6% Preference Share Capital | : | 5,000 |
| Cash & Cash Equivalents | : | 6,100 |
List any five items that are shown under Reserves and Surplus.
Under which sub-head will the following be classified or shown:
(i) Long-term Borrowings;
(ii) Deferred Tax Liabilities (Net); and
(iii) Long-term Provision?
Name the itmes that are shown under Long-term Borrowings.
State giving reason whether Trade Payables are classified as Current Liabilities or Non-current Liabilities in the Calance Sheet of a Company as per Schedule III of the Companies Act, 2013 in the following cases:
| Case |
Operating Cycle Period (Months) |
Expected Payment Period (Months |
||
| 1 |
10 |
11 |
||
| 2 |
10 |
12 |
||
| 3 | 10 | 13 | ||
| 4 | 14 | 13 | ||
| 5 |
15 |
16 |
||
Under which main head and sub-head of Equity and Liabilities part of the Balance Sheet are the following items classified or shown:
(i) Bonds
(ii) Debentures
(iii) Public Deposits
(iv) Capital Redemption Reserve
(v) Forfeited Shares Accounts
(vi) Sundry Creditors and
(vii) Interest Accrued but not Due on Debentures ?
Under which major head and sub-head of the Assets part of the Balance Sheet will the following be shown:
(i) Intangible Assets; (ii) Intangible Assets under Development; (iii) Investments (more than 12 months); (iv) Deferred Tax Assets (Net); (v) Stores and Spares; and (vi) Loose Tools?
From the following information of Best Marketing Ltd. for the year ended 31st March, 2019 prepare Note to Accounts on Depreciation and Amortisation Expenses:
Depreciation on: Building ₹ 15,500; Plant and Machinery ₹ 25,000; Computers ₹ 60,000; Goodwill written off ₹ 7,500; Patents written off ₹ 12,500.
Identify which of the following items will be shown in the Note to Accounts on Other Expenses?
(i) Salaries;
(ii) Postage Expenses;
(iii) Telephone and Internet Expenses;
(iv) Rent for warehouse;
(v) Carriage Inwards;
(vi) Depreciation on computers;
(vii) Computer Software amortised;
(viii) Computer Hiring Charges;
(ix) Audit fee;
(x) Bonus.
The financial statements do not exhibit
Briefly explain any three limitations of financial statements.
What are the objectives of preparing financial statements?
The Goodwill is not a ________.
A company prepares its Balance Sheet as per the format in ______.
What are the objectives of financial statements? They provides ______.
Financial statements includes which types of statements are required for external reporting and also for internal needs of the management?
Consider the following statements.
Statement 1 - "Financial statements are the end products of accounting process"
Statement 2 - "Financial statements are not the end products of accounting process"
For income measurement ______ basis of accounting is followed.
Consider the following statements.
Statement 1 - "Facts and figures presented in financial statements are based on personal judgements"
Statement 2 - "Facts and figures presented in financial statements are not at all based on personal judgements"
Consider the following statements.
Statement 1 - "Recorded facts are based on replacement cost"
Statement 2 - "Recorded facts are not based on replacement cost"
What are the uses and importance of financial statements?
Provision of taxation is made by debiting which account?
What are the items shown under the heading of "Current assets" in the balance sheet?
Which of the following is not a part of Finance Cost (in Statement of Profit and Loss)?
As per Schedule III, Part I of the Companies Act, 2013 'calls-in-arrears' will be presented under which of the following head/sub-head, in the Balance Sheet of a company?
Carriage Inwards is shown in the Statement of Profit and Loss under ______.
Assertion (A): Financial statements are the end products of the accounting process which reveal the financial results of a specified period and financial position as on a particular date.
Reason (R): The basic objective of these statements is to provide information required for decision making by the management as well as other outsiders who are interested in the affairs of the undertaking, as per Section 129 Schedule III to the Companies Act, 2013 every year.
| Nitya, Shreya and Ishita are partners in a firm. They share profits in the ratio of 5: 3 : 2. Their fixed capitals are ₹ 1,80,000; ₹ 1,60,000 and ₹ 2,00,000 respectively. For the year ending 31st March 2022, Nitya withdrew ₹ 7,500 at the end of every quarter. |
The average number of months for which interest on drawings will be calculated will be:
Richa and Anmol are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 2,50,000 and ₹ 1,50,000 respectively. Interest on capital is agreed @6% p.a. Anmol is to be allowed an annual salary of ₹ 12,500. During the year ended 31st March 2023, the profits of the year prior to calculation of interest on capital but after charging Anmol’s salary amounted to ₹ 62,000. A provision of 5% of this profit is to be made in respect of manager’s commission.
Following is their Profit & Loss Appropriation Account:
| Particulars | (₹) | Particulars | (₹) |
| To Interest on Capital | By Profit & loss account (After manager’s commission) | __(2)__ | |
| Richa | ______ | ||
| Anmol | ______ | ||
| To Anmol’s Salary A/c | 12,500 | ||
| To Profit transferred to: Richa’s Capital A/C (1) | __(1)__ | ||
| Anmol’s Capital A/c | ______ | ||
| ______ | ______ |
The amount to be reflected in blank (1) will be:
|
Rudra, Dev and Shiv were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Their fixed capitals were ₹ 6,00,000, ₹ 4,00,000 and ₹ 2,00,000 respectively. Besides his capital Shiv had given a loan of ₹ 75,000 to the firm. Their partnership deed provided for the following:
During the year Rudra withdrew ₹ 50,000 at the end of each quarter; Dev withdrew ₹ 50,000 in the beginning of each half year and Shiv withdrew ₹ 70,000 at the end of each half year. The profit of the firm for the year ended 31-3-2022 before allowing interest on Shiv's loan was ₹ 7,06,750. |
What will the amount of interest on drawings of the partners?
Richa and Anmol are partners sharing profits in the ratio of 3 : 2 with capitals of ₹ 2,50,000 and ₹ 1,50,000 respectively. Interest on capital is agreed @6% p.a. Anmol is to be allowed an annual salary of ₹ 12,500. During the year ended 31st March 2023, the profits of the year prior to calculation of interest on capital but after charging Anmol’s salary amounted to ₹ 62,000. A provision of 5% of this profit is to be made in respect of manager’s commission.
Following is their Profit & Loss Appropriation Account:
| Particulars | (₹) | Particulars | (₹) |
| To Interest on Capital | By Profit & loss account (After manager’s commission) | __(2)__ | |
| Richa | ______ | ||
| Anmol | ______ | ||
| To Anmol’s Salary a/c | 12,500 | ||
| To Profit transferred to: Richa’s Capital A/C (1) | __(1)__ | ||
| Anmol’s Capital A/c | ______ | ||
| ______ | ______ |
The amount to be reflected in blank (1) will be:
