Test: Tools Of Financial Analysis - 1

A Profit and Loss (P & L) statement measures a company's sales and expenses during a specified period of time. The function of a P & L statement is to total all sources of revenue and subtract all expenses related to the revenue. It shows a company's financial progress during the time period being examined.

Salaries and wages are shown under employee benefit expense while preparing statement of P/L.

Loan taken from which is to be paid in 15 years is a long term borrowing.

While preparing Statement of Profit and Loss, loss on sale investment is shown under the head other expenses.

Rent received is shown as other income and it is added to the revenue from operations to find out the total revenue.

An ideal current ratio is 2:1. It means a business must try to maintain its current assets twice of current liabilities.

Liquid Ratio is also known as 'acid test ratio' which helps in assessing the short term liquidity position of the firm.

The correct option is B.

• Quick assets are any assets that can be converted into cash on short notice.
• These assets are a subset of the current assets classification, for they do not include inventory because it can take an excess amount of time to convert into cash.
• Since it may be difficult to convert them into cash within a reasonable period of time, they are not a part of quick assets.

Low working capital turnover ratio indicates that the working capital of business is under-utilized. It means firm is not using its working capital effectively and efficiently.

Deferred tax asset is treated as a fictitious asset because it doesn’t play any role in the firm. It is just an asset by name which cannot be realized or sold.