Financial Statements and Analysis Test - 29

Following parties are interested in the Financial statement analysis:

Creditors(to know if they will get their payment)

Government( to levy taxes)

Investors(to know how return on their investment)

Rent received, Profit on sale of fixed assets, Compensation for acquisition of land are example of Non-operating incomes.Non-operating income is the portion of an organization's income that is derived from activities not related to its core operations.

Following Items that can be shown as contingent Liabilities in a company‘s Balance sheet except Advance to Subsidiaries.

1) Claims against the Company not acknowledged as debts

2) Uncalled Liability on partly paid shares.

3) Arrears of Dividend on Cumulative preference shares

Contingent liabilities are those which may or may not arise as they are dependenT on happening in future.

Companies Act 2013 is in force these days. Earlier Companies Act 1956 was in force.

Following are the limitations of financial statement analysis:

•Don't reflect changes in price level.

•Affected by the personal ability and bias of the Analyst

•Single years' Analysis of financial statement have limited use.

Break-even point is a point where total of sales is exactly equal to the total of cost to the total of cost of sales.

Shareholders fund is divided into the following parts:

Share Capital

Reserves and Surplus

Money received against share warrant

Prepaid expenses are those expenses which paid in advance by the firm. These expenses are shown under other current assets.

The main objective of analysis of financial statement is to measure the financial strength and performance of the firm.

Goodwill is an intangible asset that arises as a result of the acquisition of one company by another for a premium value. The value of a company's brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill.

Because it is a liability repayable normally within 12 months.

Classification of items:

Preliminary Expense --- Fictitious Asset

The expenses incurred when a company is formed and before the start of any business operations are termed as preliminary expenses, they are a good example of fictitious assets which are written off every year from the profits earned by the business.

Preliminary expenses include Legal cost, Professional fees, Stamp duty, Printing fees, etc.

Preliminary expenses are shown on the Assets side of the balance sheet.

Following are the non-operating expenses:

Interest on long term debts

Loss on sale of fixed assets

Intangible assets written off such as goodwill, patents etc.A non-operating expense is an expense incurred by a business that's unrelated to its core operations. The most common types of non-operating expenses relate to depreciation, amortization, interest charges or other costs of borrowing.

Sales appear in the Statement of Profit and Loss and the following items are shown in the balance sheet:

•Creditors

•Goodwill

•Trade Payables