Explain how financial statements are useful to the various parties who are interested in the affairs of an undertaking?
The various parties interested in financial statements directly or indirectly
can be categorised in two broad categories
(i) Internal Parties: The following are the internal parties directly related to the company and interested in financial statements.
(a) Owner :The owner/s is/are interested in the profit earned or loss incurred
during an accounting period. They are interested in assessing the profitability and viability of the capital invested by them in the business.
(b) Management: Management interested in financial statements for drafting
various policies measures, facilitating planning and decision making process.
(c) Employees and Workers: The employee and workers are interested in
financial statement for knowing about the timely payment of wages and salaries,
bonus and appropriate increment in their wages and salaries. Financial statement enables them to know about the figure of profit earned during the year.
(ii) External Parties :There are various external parties who are interested in
financial statements for a number of reasons. The following are the various
external parties.
(a) Creditors: Creditors are always interested in financial statement to gather
information about credit worthiness of the business.
(b) Investors and Potential Investors: Persons who are willing to invest in any
organisation always wish to know about the profitability and solvency of the
business concern. Hence, in order to assess the viability and prospectus of their
investment, creditors need information about profitability and solvency of the
business.
(c) Consumers: The survival and growth of any organisation largely depends upon the Goodwill earned in the heart of the customers. In this regards if the Business has transparent financial records it help in assisting the customers to know the correct cost of production and accordingly assess the degree of reasonability of the price charged by the business.
(d) Banks/Financial Institutions: Banks and financial institutions provide finance
in the form of loans and advances to various businesses. Thus, they need
information regarding liquidity, creditworthiness, solvency and profitability to
advance loans.
(e) Tax Authorities: They need information about sales, revenues, profit and
taxable income in order to determine and levy various types of tax on the
business.
(f) Government : It needs information to determine national income, GDP,
industrial growth, etc. The accounting information assist the government in the
formulation of various policies measures and to address various economic
problems like employment, poverty etc.
(g) Researchers :Various research institutes like NGOs and other independent
research institutions undertake various research projects and the accounting
information facilitates their research work.
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.
List any three objectives of analysing financial statements?
State the meaning of financial statement analysis?
Explain the limitations of financial statements.
‘Financial statements reflect a combination of recorded facts, accounting
conventions and personal judgements’ discuss.
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’?
What is meant by ‘Premium on Redemption of Debentures’?
How would you study the Solvency position of the firm?
What is meant by ‘Mortgaged Debentures’?
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 are liquidity ratios? Discuss the importance of current and liquid ratio.
What are various types of ratios?
What do you understand by analysis and interpretation of financial statements? Discuss its importance.
What do you mean by Ratio Analysis?