‘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.
Popular Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- 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:-
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. - Q:-
Explain the usefulness of trend percentages in interpretation of financial performance of a company.
- Q:-
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? - Q:-
What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover - Q:-
What do you understand by analysis and interpretation of financial statements? Discuss its importance.
- Q:-
State the importance of financial statements to
(i) shareholders
(ii) creditors
(iii) government
(iv) investors - Q:-
What are liquidity ratios? Discuss the importance of current and liquid ratio.
- Q:-
What is the importance of comparative statements? Illustrate youranswer with particular reference to comparative income statement.
- Q:-
What do you mean by Ratio Analysis?
Recently Viewed Questions of Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
- Q:-
How would you study the Solvency position of the firm?
- Q:-
What are Comparative Financial Statements?
- Q:-
State the meaning of financial statement analysis?
- Q:-
What is the importance of comparative statements? Illustrate youranswer with particular reference to comparative income statement.
- Q:-
What are various types of ratios?
- Q:-
What do you mean by Ratio Analysis?
- Q:-
Prepare the format of balance sheet and explain the various elements of balance sheet.
- Q:-
State the importance of Financial Analysis?
- Q:-
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?
- Q:-
Prepare the format of statement of profit and loss and explain its items.
- NCERT Chapter