Chapter 9: Analysis of Financial Statements

Important Questions

1. What are comparative and common-size statements?

2. Differentiate between horizontal and vertical analysis?

3. What are the uses of financial analysis?

4. From the following balance sheet of X Ltd. as at 31st March 2019, prepare comparative balance sheet:-

Particulars

Note no.

31st March 2019

31st March 2018
  • Equity and Liabilities Share capital
  • Non-current Liabilities Long–term borrowings:8% debentures (secured)
  • Current Liabilities Trade payables

18,00,000

6,00,000

6,00,000

12,00,000

6,00,000

3,00,000

Total

30,00,000

21,00,000

II. Assets

  • Non-current assets
    Fixed assets: Tangible Assets
  • Current Assets

  • Trade receivables
  • Cash and cash equivalents

18,00,000

10,00,000

2,00,000

15,00,000

5,00,000

1,00,000

Total

30,00,000

21,000,000

Sample Questions

1. From the following statement of profit and loss for the years ended 31st March, 2012 and 2013, prepare common-size statement of profit and loss:-

Particulars

Note no.

31st March 2013

31st March 2012
  • Income
    Revenue from operations (net sales)
  • Expenses
    Purchase of stock In trade
    Change in inventories
    Depreciation and amortization expenses
    Other expenses

12,50,000


8,70,000
(20,000)
30,000
50,000

10,00,000

7,20,000
30,000
20,000
30,000

Total

9,30,000

8,00,000

3. Profit before Tax(I-II)

4. Less: Income tax

3,20,000

96,000

2,00,000

60,000

5. Profit after Tax (III-IV)

2,24,000

1,40,000

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

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

4. Explain how common size statements are prepared giving an example.

5. List the techniques of Financial Statement Analysis

MCQ

1. Balance Sheet provides information about financial position of the enterprise:

(a) At a point in time
(b) Over a period of time
(c) For a period of time
(d) None of the above

2. Comparative statements are also known as:

(a) Dynamic analysis

(b) Horizontal analysis

(c) Vertical analysis

(d) External analysis

3. If the total assets of a firm are Rs. 10,00,000 and its non current assets are Rs. 6,00,000. What will be the percentage of current assets on total assets?

(a) 20%

(b) 50%

(c) 40%

(d) 10%

4. Which of the following is untrue?

(a) Common Size balance sheet

(b) Common Size cash flow statement

(c) Common size statement of profit and loss

(d) All of the above

5. The most commonly used tools for financial analysis are:

(a) Horizontal analysis

(b) Vertical analysis

(c) Ratio analysis

(d) All the above