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Question
What are the objectives of preparing financial statements?
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Solution
The following are the objectives of preparing financial statements:
1. To ascertain profit earned or loss incurred by a business during an accounting period.
This is estimated by preparing Trading and Profit and Loss Account.
2. To ascertain the true financial position of a business.
This is reflected by the Balance Sheet.
3. To enable comparison of current year’s performance with that of the previous year’s, i.e., intra-firm comparisons.
Also, to compare own performance with that of the other firms in the same industry, i.e., inter-firm comparisons.
4. To assess the solvency and credit worthiness of the business
5. To provide various provisions and reserves to meet unforeseen future conditions and to toughen the financial position of the business
6. To provide vital information to facilitate various users of accounting information in decision-making process.
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RELATED QUESTIONS
Complete the following journal entries left blank in the books of VK Ltd.:
| VK Ltd. Journal |
||||
| Date | Particulars | L.F. |
Dr. Rs |
Cr. Rs |
| 2018 Feb 1 |
___________________ Dr. ___________________ (Purchased own 500, 9% debentures of Rs 100 each at Rs 97 each for immediate cancellation) |
________
|
________
|
|
| Feb 1 |
___________________ Dr. ___________________ ___________________ (Cancelled own debentures) |
________
|
________ ________ |
|
| ______ |
___________________ Dr. ___________________ (______________________) |
________
|
________ | |
'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.
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Financial statements are prepared following the consistent accounting concepts, principles, procedures and also the legal environment in which the business organizations operate. These statements are the sources 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 in a meaningful way.
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.
General Reserves, short term loans and advances, Capital work in progress and desgin.
State the interest of tax authorities in the analysis of financial statements.
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Short Answer Question
State the meaning of financial statements?
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 |
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| Rs. | |
| General Reserve | 3,000 |
| 10% Debentures | 3,000 |
| Balance in 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 |
Under which sub-head will the following be classified or shown:
(i) Long-term Borrowings;
(ii) Deferred Tax Liabilities (Net); and
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State giving reason whether Trade Receivables are classified as Current Assets or Non-current Assets in the Balance Sheet of a Company as per Schedule III of the Companies Act, 2013 in the following cases.
| Case | Operating cycle Period (months) | Expected realization period (months) |
| 1 | 10 | 11 |
| 2 | 10 | 12 |
| 3 | 10 | 13 |
| 4 | 14 | 13 |
| 5 | 15 | 16 |
State giving reason whether Trade Payables are classified as Current Liabilities or Non-current Liabilities in the Balance 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 |
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(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;
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Which Indian Companies Act is in force these days?
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___________ is conducted by bankers and government.
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- Vertical Analysis is also termed as time series analysis.
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Profit and loss account is also called ______ statement.
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Find out Cost of goods sold Opening stock = 1002, Purchases = 50,000, Wages = 5000, Manufacturing expenses = 20,000.
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| 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:
| 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 partnership deed provided that interest on capital will be allowed @10% p.a. The amount of interest on Ishita's capital 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?
