NCERT Solutions for Class 12 Accountancy Company Accounts and Analysis of Financial Statements Chapter 4

Analysis of Financial Statements Class 12

Chapter 4 Analysis of Financial Statements Exercise Solutions

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Short answersnumerical questionslong answers : Solutions of Questions on Page Number : 232

Q1 :  

List the techniques of Financial Statement Analysis.


Answer :

The following are the commonly used techniques of Financial Statement analysis :

1.   Comparative Financial Statements

2.   Common Size Financial Statements

3.   Trend Analysis

4.   Ratio Analysis

5.   Cash Flow Statement

6.   Fund Flow Statement

 

The above listed techniques can be classified on the following basis:

A. On the basis of Comparison

      1.   Inter-firm Comparison

            a) Comparative Statement (Balance Sheet, Profit and Loss Account)

            b) Common size Statement (of the same period)

            c) Ratio of two or more Competitive Firms (of the same period)

            d) Cash Flow Statement of two or more Competitive firms

            e) Polygon, Bar Diagram

      2.   Intra-firm Comparison

            a) Comparative Statement (Balance Sheet, Profit and Loss Account)

            b) Common size Statement (of the same period)

            c) Ratio of two or more Competitive Firms (of the same period)

            d) Cash Flow Statement of two or more Competitive firms

            e) Polygon, Bar Diagram

      3.   Horizontal Comparison

      4.   Vertical Comparison

 

B. On the basis of Time

      1.   Inter-period Comparison

            a) Comparative statement (two or more periods)

            b) Cash Flow statement (two or more period) etc.

      2. Cross Sectional (Intra-period) Comparison

            a) Common size statement

            b) Ratio Analysis

 

C. Horizontal Analysis

      1.   Time series

      2.   Bar Diagram

      3.   Polygon

      4.   Comparative statement

      5.   Ratio Analysis

 

D. Vertical Analysis

      1.   Common size statement

      2.   Pie Diagram

 

 

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Q2 :  

 

From the following information of Narsimham Company Ltd., prepare a Comparative Income Statement for the years 2004-2005

 

Particulars

2004

Rs

2005

Rs

Gross Sales

7,25,000

8,15,000

Less : Returns

25,000

15,000

Net Sales

7,00,000

8,00,000

Cost of Goods Sold

5,95,000

6,15,000

Gross Profit

1,05,000

1,85,000

Other Expenses

 

 

Selling & distribution Expenses

23,000

24,000

Administration Expenses

12,700

12,500

Total Expenses

35,700

36,500

Operating Income

69,300

1,48,500

Other Income

1,200

8,050

 

70,500

1,56,550

Non Operating Expenses

1,750

1,940

Net Profit

68,750

1,54,610

 

 


Answer :

 

Comparative Income Statement of Narsimham Company Ltd.

for the year ended 2004 and 2005

 

Particulars

2004

2005

Absolute

Increase (+)

or

Decrease (–)

Percentage

Increase (+)

or

Decrease

 

Rs

Rs

Rs

%

Gross Sales

7,25,000

8,15,000

+ 90,000

+ 12.41

Less: Return

25,000

15,000

(–) 10,000

(–) 40.00

Net Sales

7,00,000

8,00,000

+ 1,00,000

+ 14.28

Cost of Good Sold

5,95,000

6,15,000

+ 20,000

+ 3.36

Gross Profit

1,05,000

1,85,000

+ 80,000

+ 76.19

Other Expenses

 

 

 

 

Selling & distribution Expenses

23,000

24,000

+ 1,000

+ 4.35

Administration Expenses

12,700

12,500

(–) 200

(–) 1.57

Total Expenses

35,700

36,500

+ 800

+ 2.24

Operating Income

69,300

1,48,500

+ 79,200

+ 114.29

Other Income

1,200

8,050

+ 6,850

+ 570.83

 

70,500

1,56,550

+ 86,050

+ 122.06

Non Operating Expenses

1,750

1,940

+ 190

+ 10.86

Net Profit

68,750

1,54,610

+ 85,860

+ 124.89

 

Current Year - Previous Year

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Q3 :  

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


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Q4 :  

Distinguish between Vertical and Horizontal Analysis of financial data.


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Q5 :  

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


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Q6 :  

Explain the meaning of Analysis and Interpretation.


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Q7 :  

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


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Q8 :  

Bring out the importance of Financial Analysis


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Q9 :  

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


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Q10 :  

What are Comparative Financial Statements?


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Q11 :  

Explain how common size statements are prepared giving an example.


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Q12 :  

What do you mean by Common Size Statements?


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<< Previous Chapter 3 : Financial Statements of a Company Next Chapter 5 : Accounting Ratios >>

Numerical questions : Solutions of Questions on Page Number : 233

Q1 :  

 

The following are the Balance Sheets of Mohan Ltd., at the end of 2004 and 2005.

 

 

 

 

 

Rs'000

Liabilities

2004

2005

Assets

2004

2005

Equity Share Capital

400

600

Land & buildings

270

170

Reserves & Surplus

312

354

Plant & Machinery

310

786

Debentures

50

100

Furniture & Fixtures

9

18

Long-term Loans

150

255

Other Fixed Assets

20

30

Accounts Payable

255

117

Loans and Advances

46

59

Other Current Liabilities

7

10

Cash and Bank

118

10

 

 

 

Account Receivable

209

190

 

 

 

Inventory

160

130

 

 

 

Prepaid Expenses

3

3

 

 

 

Other current Assets

29

40

 

1,174

1,436

 

1,174

1,436

 

Prepare a Comparative Balance Sheet and study the financial position of the company.

 

 


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Q2 :  

 

The following are the balance sheets of Devi Co. Ltd at the end of 2002 and 2003. Prepare a Comparative Balance Sheet and study the financial position of the concern.

 

Liabilities

2002

Rs

2003

Rs

Assets

2002

Rs

2003

Rs

Equity Capital

1,20,000

1,85,000

Fixed Assets

1,40,000

1,95,000

Preference Capital

70,000

95,000

Stock

40,000

45,000

Reserves

30,000

35,000

Debtors

70,000

82,500

P&L

17,500

20,000

Bills Receivables

20,000

50,000

Bank overdraft

35,000

45,450

Prepaid Expenses

6,000

8,000

Creditors

25,000

35,000

Cash at bank

40,000

48,500

Provision for Taxation

15,000

22,500

Cash in hand

5,000

29,000

Proposed Dividend

8,500

20,050

 

 

 

 

3,21,000

4,58,000

 

3,21,000

4,58,000

 

 


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Q3 :  

 

Convert the following Income Statement into Common Size Statement and interpret the changes in 2005 in the light of the conditions in 2004.

 

 

2004

Rs

2005

Rs

Gross Sales

30,600

36,720

Less : Returns

600

700

Net Sales

30,000

36,020

Less : Cost of Goods Sold

18,200

20,250

Gross Profit

11,800

15,770

Less : Operating Expenses

 

 

Administration Expenses

3,000

3,400

Sales Expenses

6,000

6,600

Total Expenses

9,000

10,000

Income from Operations

2,800

5,770

Add : Non-operating Income

300

400

Total Income

3,100

6,170

Less : Non-operating Expenses

400

600

Net Profit

2,700

5,570

 

 


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Q4 :  

 

Following are the balance sheets of Reddy Ltd. as on 31 March 2003 and 2004.

 

Liabilities

2004

2005

Assets

2004

2005

Share Capital

2,400

3,600

Land & buildings

1,620

1,040

Reserves & Surplus

1,872

2,124

Plant & Machinery

1,860

4,716

Debentures

300

600

Furniture & Fixtures

54

108

Long-term Debt

900

1,530

Other Fixed Assets

120

180

Bills Payable

1,530

702

Long-terms Loans

276

354

Other Current Liabilities

42

60

Cash & Bank Balances

708

60

 

 

 

Bill Receivable

1,254

1,120

 

 

 

Stock

960

780

 

 

 

Prepaid Expenses

18

18

 

 

 

Other Current Assets

174

240

 

7,044

8,616

 

7,044

8,616

 

Analyse the financial position of the company with the help of the Common Size Balance Sheet.

 

 


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Q5 :  

 

The accompanying balance sheet and profit and loss account related to SUMO Logistics Pvt. Ltd. Convert these into Common Size Statements.

Previous Year = 2005, Current Year = 2006

 

Rs'000

 

Previous

Year

Current

Year

Liabilities

 

 

Equity Share Capital (of Rs 10 each)

240

240

General Reserve

96

182

Long Term loans

182

169.5

Creditors

67

52

Outstanding expenses

6

-

Other Current liabilities

9

6.5

Total Liabilities

600

650

Assets

 

 

Plant assets net of accumulated less depreciation

402

390

Cash

54

78

Debtors

60

65

Inventories

84

117

Total Assets

600

650

 

Income Statement for the year ended

 

Rs'000

 

Previous

Year

Current

Year

Gross Sales

370

480

Less : Returns

20

30

Net Sales

350

450

Less : Cost of goods sold

190

215

Gross Profit

160

235

Less : Selling general and administration expenses

50

72

Operating profit

110

163

Less : Interest expenses

20

17

Earnings before tax

90

146

Less : Taxes

45

73

Earnings After Tax

45

73

 

 


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Q6 :  

 

From the following particulars extracted from P&L A/c of Prashanth Ltd., you are required to calculate trend percentages

 

Year

Sales

Rs

Wages

Rs

Bad Debts

Rs

Profit after tax

Rs

2003

3,50,000

50,000

14,000

16,000

2004

4,15,000

60,000

26,000

24,500

2005

4,25,000

72,200

29,000

45,000

2006

4,60,000

85,000

33,000

60,000

 

 


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Q7 :  

Calculate trend percentages from the following figures of ABC Ltd., taking 2000 as base and interpret them.

 

Year

Sales

Stock

Profit before tax

2000

1,500

700

300

2001

2,140

780

450

2002

2,365

820

480

2003

3,020

930

530

2004

3,500

1160

660

2005

4000

1200

700

 

 


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Q8 :  

 

From the following data relating to the liabilities side of balance sheet of Madhuri Ltd., as on 31st March 2006, you are required to calculate trend percentages taking 2002 as the base year.

 

(Rs in lakhs)

Liabilities

2002

2003

2004

2005

2006

Share capital

100

125

130

150

160

Reserves & Surplus

50

60

65

75

80

12% Debentures

200

250

300

400

400

Bank overdraft

10

20

25

25

20

Profit & Loss A/c

20

22

28

26

30

Sundry Creditors

40

70

60

70

75

 

 


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