Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Financial Statements of a Company NCERT Solutions | What are limitations of financial statem
What are limitations of financial statement analysis?
Limitations of financial statement analysis:
1. Not a Substitute of Judgement An analysis of financial statement cannot take place of sound judgement. It is only a means to reach conclusions. Ultimately, the judgements are taken by an interested party or analyst on his/ her intelligence and skill.
2. Based on Past Data Only past data of accounting information is included in the financial statements, which are analyzed. The future cannot be just like past. Hence, the analysis of financial statements cannot provide a basis for future estimation, forecasting, budgeting and planning.
3. Problem in Comparability The size of business concern is varying according to the volume of transactions. Hence, the figures of different financial statements lose the characteristic of comparability.
4. Reliability of Figures Sometimes, the contents of the financial statements are manipulated by window dressing. If so, the analysis of financial statements results in misleading or meaningless.
More Questions From Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Financial Statements of a Company
- Q:-
How will you disclose the following items in the Balance Sheet of a company;
(i) Loose tools
(ii) Uncalled liability on partly paid-up shares
(iii) Debentures redemption reserve
(iv) Mastheads and publishing titles (v) 10% debentures
(vi) Proposed dividend
(vii) Share forfeited account
(viii) Capital redemtion reserve
(ix) Mining rights
(x) Work-in-progress - Q:-
State the importance of financial statements to
(i) shareholders
(ii) creditors
(iii) government
(iv) investors - Q:-
Prepare the format of balance sheet and explain the various elements of balance sheet.
- Q:-
Prepare the format of statement of profit and loss and explain its items.
- Q:-
Explain the process of preparing income statement and balance sheet.
- Q:-
Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?
- Q:-
List any three objectives of analysing financial statements?
- Q:-
State the meaning of financial statement analysis?
- Q:-
Explain the limitations of financial statements.
- Q:-
Explain the nature of the financial statements.
Popular Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- Q:- What is meant by a Debenture?
- Q:-
What do you mean by Ratio Analysis?
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List the techniques of Financial Statement Analysis.
- Q:-
What does a Bearer Debenture mean?
- Q:-
What are various types of ratios?
- Q:-
Distinguish between Vertical and Horizontal Analysis of financial data.
- Q:-
State the meaning of ‘Debentures issued as a collateral security’.
- Q:-
What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover - Q:-
State the meaning of Analysis and Interpretation.
- Q:-
What is meant by ‘Issue of debentures for consideration other than cash’?
Recently Viewed Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- Q:-
State the meaning of Analysis and Interpretation.
- Q:-
What are important profitability ratios? How are these worked out?
- Q:-
How would you deal with ‘Premium on Redemption of Debentures?
- Q:-
What is meant by ‘Redemption out of Capital?
- Q:-
Can the company purchase its own debentures?
- Q:-
What is meant by redemption of debentures by conversion?
- Q:-
What is a ‘Convertible Debenture’?
- Q:-
What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover - Q:-
Differentiate between redemption of debentures out of capital and out of profits.
- Q:-
Describe the steps for creating Sinking Fund for redemption of debentures.
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