NCERT Numerical Questions Answers - Analysis of Financial Statements

# NCERT Numerical Questions Answers - Analysis of Financial Statements | Accountancy Class 12 - Commerce PDF Download

Q1 :
The following are the Balance Sheets of Mohan Ltd., at the end of 2004 and 2005.

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

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.

Comparative Balance Sheet of Devi Co Ltd.

Interpretation

1) The comparative balance sheet of a company reveals that during the year 2003, there has been an increase in fixed asset by 55,000 i.e. 39.29% while equity Capital increase by 65,000 i.e. 54.17 and preference capital increase by 25,000 i.e. 35.71. It shows that company purchase fixed assets from long term source of finance, which does not affect the working capital.

2) The current assets have increased by 82,000 i.e. 42.30% and current liabilities have increased by 39,500 i.e. 47.31. It shows ratio between current assets and current liabilities more or less should be same compare to previous year.

3) The overall financial position of a company is satisfactory.

Working Notes

Q3 :

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

Common Size Income Statement

Interpretation:

1) The Net Profit of the company increased from 9% to 15.46 % as the income from operations has increased from 9.15% to 15.71%.

2) Simultaneously the company has tried to reduce its costs to improve its profit margin.

3) Profitability of the company has improved over the year.

Q4 :
Following are the balance sheets of Reddy Ltd. as on 31 March 2003 and 2004.

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

Common Size Balance Sheet of Reddy Ltd. as on March 31, 2003 and 2004

Interpretation:

1) The Current Assets has decreased from 44.21% to 25.74% i.e. by 18.47% and the Current Liabilities has reduced from 22.31% to 8.84% i.e. by 13.47%. Despite the decrease in the Current Assets and the decrease in the Current Liabilities, the Current Ratio has improved.

2) Fixed Assets, Long term External Debts and the Share Capital have increased from 51.88% to 70.14%, 17.03% to 24.72%, 34.07% to 41.78% respectively. Thus from this, it can be inferred that the company had purchased fixed assets from long-term source of finance. As the fixed assets were financed through the long-term debts, so the company's working capital remained unaffected.

3) Analysing the reducing figures of the Cash and Bank Balances, it can be inferred that the company has a poor cash management policy. Thus we can predict that the company may face an acute liquidity problem.

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

Income Statement for the year ended

Common Size Balance Sheet of SUMO Logistics Pvt. Ltd. As on 2005 and 2006

Common Size Income Statement of SUMO Logistics Pvt. Ltd.

For the year ended 2005 and 2006

The document NCERT Numerical Questions Answers - Analysis of Financial Statements | Accountancy Class 12 - Commerce is a part of the Commerce Course Accountancy Class 12.
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## Accountancy Class 12

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## FAQs on NCERT Numerical Questions Answers - Analysis of Financial Statements - Accountancy Class 12 - Commerce

 1. What is the importance of analyzing financial statements in commerce?
Ans. Analyzing financial statements is important in commerce as it helps in understanding the financial health of a company. By analyzing financial statements, investors, creditors, and other stakeholders can make informed decisions about investing or lending money to the company. Financial analysis also helps in identifying areas where the company can improve its performance, reduce costs, and increase profits.
 2. What are the different types of financial statements that are analyzed in commerce?
Ans. There are three main types of financial statements that are analyzed in commerce: (i) Balance Sheet, (ii) Income Statement or Profit and Loss Statement, and (iii) Cash Flow Statement. The Balance Sheet shows the assets, liabilities, and equity of the company at a particular point in time. The Income Statement shows the revenues, expenses, and profits of the company over a particular period of time. The Cash Flow Statement shows the cash inflows and outflows of the company over a particular period of time.
 3. How can ratio analysis be used to analyze financial statements in commerce?
Ans. Ratio analysis is a tool that is used to analyze financial statements in commerce. Ratios are calculated by dividing one financial statement item by another. These ratios are then compared to industry standards or previous years' ratios to identify trends and areas of concern. For example, the debt-to-equity ratio can be used to identify whether the company is relying too heavily on debt to finance its operations. A high debt-to-equity ratio may indicate that the company is at risk of defaulting on its loans.
 4. What are the limitations of financial statement analysis in commerce?
Ans. There are some limitations to financial statement analysis in commerce. For example, financial statements may not reflect the true value of certain assets or liabilities. Additionally, financial statements may not provide a complete picture of the company's operations, as some important factors, such as employee morale or the company's reputation, may not be reflected in the financial statements. Finally, financial statements are historical in nature and may not necessarily predict future performance.
 5. How can a company improve its financial position through financial statement analysis in commerce?
Ans. A company can improve its financial position through financial statement analysis in commerce by identifying areas where it can reduce costs, increase revenue, or improve efficiency. For example, if the company's debt-to-equity ratio is high, it may consider reducing its debt by paying off loans or issuing new equity. Additionally, if the company's profit margins are low, it may consider increasing its prices or reducing its expenses. By analyzing financial statements, a company can identify areas where it can improve its financial position and take action to implement these changes.

## Accountancy Class 12

47 videos|109 docs|56 tests

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