CBSE Class 12 Accountancy Analysis Of Financial Statements Notes

Financial Statements of a Company

Financial Statements: Financial statements are the end products of accounting process, which reveal the financial results of a specified period and financial position as on a particular date. These statements include income statement and balance sheet. The basic objective of these statements is to provide information required for decision making by the management as well as other outsiders who are interested in the affairs of the undertaking. Section 129 of as per
Schedule III to the Companies Act, 2013 every year.

1. Balance Sheet: The balance sheet shows all the assets owned by the concerned, all the obligations or liabilities payable to outsiders or creditors and claims of the owners on a particular date.
2. Income statement or Statement of Profit and Loss : The Income Statement or Profit and Loss is prepared for theperiod (12 months) to determine the operational results of an undertaking. It is a statement of revenue earned and the expenses incurred for earning the revenue.
3. Notes to Accounts. (Balance Sheet & Statement of Profit and Loss) supported by the notes in which details of items is given
4. Cash Flow Statement. Cash flow statement provides information changes in cash and cash equivalents of an enterprise by classifying cash flows into operating, investing and financingactivities for a particular period of time i.e financial year as per AS-3.

ØEmployee Benefit Expenses- Expenses payment made to and for the benefits of the employees. Example- Wages, Salaries, Bonus, Leave encashment, Staff welfare expenses, ESOP expenses are shown in the notes to Accounts on Employee Benefit Expenses and total of these is shown on the face of the statement of Profit and Loss against Employee Benefit Expenses.

ØFinance Cost-Means cost incurred by the company on the borrowings i.e loan processing fee, discount if issues of debenture written off, premium payable of redemption of debenture, interest paid on bank overdraft.
ØBank charges are not a finance cost they come under other expenses as they are expenses on service availed from bank.

Q.1. List any three items that can be shown as contingent Liabilities in a company's Balance sheet.

Ans: (i) Claims against the Company not acknowledged as debts. (ii) Uncalled Liability on partly paid shares.

(iii) Arrears of Dividend on Cumulative preference shares.

Q.2. How is a Company's balance sheet different from that of a Partnership firm? Give two point only?

Ans. (i) For company's Balance Sheet there is a standard forms prescribed under the companies Act.2013 .Whereas, there is no standard form prescribed under the Indian partnership Act, 1932 for a partnership Firms balance sheet.

(ii) In case of a company's Balance sheet previous year's figures are required to be given whereas it is not so in the case of a partnership firms balance sheet.

Q.3. How does analysis of financial statements suffer from the limitation of window dressing?

Ans. Analysis of financial statements is affected from the limitation of window dressing as companies hide some vital information or show items at incorrect value to portray better

profitability and financial Position of the business, for example the company may overvalue closing stock to show higher profits.

Q.4. Operating Cycle and The period when payment is made given below, how will you classify the liabilities.

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