Financial Statements and Analysis Test - 30

Statement of Profit and Loss is prepared to assess the net profit or net loss of the firm.

Loose Tools are shown under the heading of Inventories. Loose Tools are current assets of the company.

Loose Tools are Current Assets, with high turnover. Unlike other Assets these tools go useless very fast, besides they are used in production of something else with direct process.

Example: Screw drivers

Stores and spares comes in balance sheet under the heading Inventories. Following items do not take place in Balance Sheet:

•Sales

•Purchase

•Expenses

Sales ,Purchases and Expenses are a art of Statement of Profit and Loss,not Balance Sheet.

Statement of profit and loss shows whether the enterprise is earning adequate profits and whether the profits have increased or decreased as compared to previous years whereas balance sheet shows the position of the business as regards to the payment of its short term as well as long term liabilities. Different ratios are also calculated. Hence, to assess the profitability and solvency is one of the objective of the financial statement analysis.

Other options i.e. historical analysis, ignores price level changes, ignores qualitative aspect are the limitations of financial statement analysis.

Various figure of single year Financial Statement are converted in to percentage with respect to some common base. In Income Statement, sales is taken as base (i.e.100) where as in Balance Sheet total assets are taken as base.

Balance Sheet of a company is prepared as per the Schedule III of the Indian Companies Act, 2013.

Non-operating income, in accounting and finance, is gains or losses from sources not related to the main activities of the business.

Non-operating income is the portion of an organisation's income that is derived from activities not related to its core operations. Non-operating income can include such items as dividend income, profits and losses from investments, gains or losses incurred due to foreign exchange, asset write-downs and other non-operating revenues and expenses

Securities premium reserve is shown under the heading Shareholders funds and sub heading Reserves and Surplus.

Titles and Mastheads are shown under the heading of Intangible assets.It does not have physical existence and gives benefit for more than one accounting period.

Internal analysis is done by the management to analyse financial position and performance. The analysis done by the shareholders, bankers and creditors is called external analysis.