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Accountancy - Company Accounts and Analysis of Financial Statements
Financial Statements of a Company
What are limitations of financial statement analysis?

What are limitations of financial statem | Class 12 Accountancy - Company Accounts and Analysis of Financial Statements Chapter Financial Statements of a Company, Financial Statements of a Company NCERT Solutions

Welcome to the NCERT Solutions for Class 12 Accountancy - Company Accounts and Analysis of Financial Statements - Chapter Financial Statements of a Company. This page offers a step-by-step solution to the specific question from Exercise 1, Question 2: . With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.

Question 2:

What are limitations of financial statement analysis?

Answer:

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.

Other Questions of Chapter Financial Statements of a Company

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 meaning of financial statement analysis?

‘Financial statements reflect a combination of recorded facts, accounting
conventions and personal judgements’ discuss.

Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?

Explain the process of preparing income statement and balance sheet.

List any three objectives of analysing financial statements?

Explain the limitations of financial statements.

Explain in detail about the significance of the financial statements.

Explain the nature of the financial statements.

Prepare the format of balance sheet and explain the various elements of balance sheet.

Popular questions of class 12 Accountancy - Company Accounts and Analysis of Financial Statements

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.

The liquidity of a business firm is measured by its ability to satisfy itslong-
term obligations as they become due. What are the ratios used forthis purpose?

What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover

Describe the different techniques of financial analysis and explain the limitations of financial analysis.

What do you understand by analysis and interpretation of financial statements? Discuss its importance.

What are liquidity ratios? Discuss the importance of current and liquid ratio.

Explain how common size statements are prepared giving an example.

What do you mean by Ratio Analysis?

What is the importance of comparative statements? Illustrate youranswer with particular reference to comparative income statement.

Recently Viewed Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements

How would you deal with ‘Premium on Redemption of Debentures?

State the meaning of Analysis and Interpretation.

What is meant by ‘Premium on Redemption of Debentures’?

Can the company purchase its own debentures?

What does a Bearer Debenture mean?

Describe the different techniques of financial analysis and explain the limitations of financial analysis.

The average age of inventory is viewed as the average length of time inventory is held by the firm or as the average number of days’ sales in inventory. Why?

What is a ‘Convertible Debenture’?

What is meant by redemption of debentures by ‘Purchase in the Open Market’?

Explain the usefulness of trend percentages in interpretation of financial performance of a company.

Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

Read the question carefully and focus on the core concept being asked.
Reference examples and data from the chapter when answering questions about Financial Statements of a Company.
Review previous year question papers to get an idea of how such questions may be framed in exams.
Practice answering questions within the time limit to improve your speed and accuracy.
Discuss your answers with your teachers or peers to get feedback and improve your understanding.

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