Financial Statements and Analysis Test - 32

Shareholders are interested in the analysis of financial statement because they want to judge the present and future earning capacity of the business. They want to know whether their investment would yield how many returns.

Because it is in the form of a short term loan from bank repayable within 12 months.

Office building under construction is shown under fixed assets i.e. Capital work in progress.This account is shown separately in the balance sheet below the fixed asset. Capital work in progress account contains all expenses incurred on the asset until it is converted into working condition. All these expenses will become part of the cost of that asset.

Financial year always begins on 1st April of current year and ends on 31st March in the next year.

Bills of exchange is not shown under the heading Reserves and surplus but following items will be shown under this heading:

•Securities Premium Reserve

•Statement of profit and loss

•Capital Reserve

Bills of Exchange come as trade payables in current liabilities.

Horizontal analysis is a time series analysis because it shows comparison of financial data for several years.

Intra-firm comparison means comparison of two or more departments or divisions of the same business unit with the objective of meaningful analysis in order to improve the operational efficiency of all the departments or divisions.

A company can obtain special permission form registrar to extend the accounting period which can be up to 18 months.The Registrar has power to extend a financial year up to eighteen months in terms of the proviso under section 210(4) of the Companies Act.In order that the public record of a company’s accounts is regularly updated, an accounting period cannot be extended to longer than 18 months, and in most cases, the accounting period cannot be extended more than once every 5 years.

Information available from the analysis of financial statement will serve the following:

•Potential Investors (to make decisions regarding investment)

•Economist and Researchers(to make policies)

•Stock Exchange(to know about company's worth and market standing)

Analysis conducted by the Investors and Creditors is known as External Analysis because they both are treated as outsiders.