‘Financial statements reflect a combination of recorded facts, accounting
conventions and personal judgements’ discuss.
The financial statements not only help in presenting the true and real financial position of the company but they also help in taking managerial decisions. The nature of the financial statements depends upon the following aspects like recorded facts, conventions, concepts and personal judgement.
(i) Recorded Facts: The items recorded in the financial statements reflect their
original cost i.e., the cost at which they were acquired. Consequently, financial
statements do not reveal the current market price of the items. Further, financial
statements fail to capture the inflation effects.
(ii) Accounting Conventions: The preparation of financial statements is based on
some accounting conventions like, Prudence Convention, Materiality Convention, Matching Concept, etc. The adherence to such accounting conventions makes financial statements easy to understand, comparable and reflects the true and fair financial position of the company. Besides the above while preparing financial statements, certain concepts are adhered to. The nature of these concepts is reflected in the nature of the financial statements.
(iii) Personal Judgements: The nature of financial statement largely depends
upon the personal value judgements. Personal judgements are attached to
different practices of recording transactions in the financial statements, e.g.,
recording stock either at market value or at the cost requires value judgement
depending upon the personal judgement. Thus, personal judgements help in
determining the nature of the financial statements.
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
State the importance of financial statements to
(i) shareholders
(ii) creditors
(iii) government
(iv) investors
Prepare the format of statement of profit and loss and explain its items.
Prepare the format of balance sheet and explain the various elements of balance sheet.
Explain the process of preparing income statement and balance sheet.
Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?
List any three objectives of analysing financial statements?
State the meaning of financial statement analysis?
Explain the limitations of financial statements.
Explain the nature of the financial statements.
What do you mean by Ratio Analysis?
List the techniques of Financial Statement Analysis.
What does a Bearer Debenture mean?
What are various types of ratios?
Distinguish between Vertical and Horizontal Analysis of financial data.
State the meaning of ‘Debentures issued as a collateral security’.
What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover
State the meaning of Analysis and Interpretation.
What is meant by ‘Issue of debentures for consideration other than cash’?
State the importance of Financial Analysis?
What are important profitability ratios? How are these worked out?
Describe the steps for creating Sinking Fund for redemption of debentures.
What is meant by ‘Issue of debentures for consideration other than cash’?
What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover
The current ratio provides a better measure of overall liquidity only when a
firm’s inventory cannot easily be converted into cash. If inventory is liquid, the
quick ratio is a preferred measure of overall liquidity. Explain.
Explain the usefulness of trend percentages in interpretation of financial performance of a company.
What do you mean by Common Size Statements?
What are various types of ratios?