FINANCIAL

STATEMENTS
OF A COMPANY
XII ACCOUNTANCY
(2022- 2023
SUNIL PANDA- )
THE EDUCATOR
PART- 1
 Financial statements
The financial statement are a summary of accounts of a business enterprise.
Like Balance sheet, income statement, cash flow statement and
Notes to accounts.
 Objectives of financial statements
a) To provide financial information of an enterprise.
b) To show the Profitability of an enterprise
c) To Disclose the financial Position
d) To provide sufficient and reliable information to various parties interested in
financial statements
e) To present a true and fair view of the business
f) It Helps in Making Managerial decisions.
g) To provide data for forecasting
h) To disclose accounting policies followed in the accounting process for the better
understanding of financial statements
i) It helps to measure the overall efficiency of firm.
Format of Balance sheet prescribed in Part I of Schedule III of the
companies Act, 2013, is as follows.
Particulars Note no. CY PY
I Equity and Liabilities
1. Shareholder’s fund
(a) Share capital
(b) Reserve and surplus
(C) Money received against share warrants
2. Share applications money pending allotment
3. Non-Current liabilities
(a) Long-term borrowings
(b) Deferred Tax liabilities (net)
(c) Other long-term liabilities
(d) Long term Provision
4. Current liabilities
(a) Short term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short term provision

Total
Particulars Note no. CY PY
II Assets
1. Non-Current Assets
(a) Property, Plant and Equipment's and intangible assets
(i) Property, Plant and Equipment's
(ii) Intangible Assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current Investments
(c) Deferred tax assets (net)
(d) Long term loans and advance
(e) Other non-current assets
2. Current Assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and Cash equivalents
(e) Short-term loans and advances
(f) Other current assets
Total
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 FINANCIAL
STATEMENTS
OF A COMPANY
XII ACCOUNTANCY
(2022- 2023 )
PART- 2

Items
Calls in Arrear
Share forfeited A/c
Calls in advance
Unclaimed dividend
% Debenture
General reserve, Securities
premium reserve ,DRR/CR,
Statement of P&l (CR)
Heading & Sub headings
Main head Sub head
Shareholders fund By way of deduction from
subscribed share capital.
Shareholders fund By way of addition in
subscribed share capital
Current liabilities Other current liabilities
Current liabilities Other current liabilities
Non current liabilities Long term borrowings
Shareholders fund Reserve and surplus
items Main head Sub head
Statement of P&l Dr. Shareholders fund Reserve & surplus by way of
deduction
Public deposits/ Bonds Non current liability Long term borrowings
Debtors & Bill receivables Current Assets Trade receivable
Creditor & Bill payable Current liability Trade payable
Provision for tax Current liability Short term provision
Bank overdraft Current liability Short term borrowings
Provision for doubtful Current assets By way of deduction from
debt trade receivable

Loose tools/spare & stores Current assets Inventory

Items Main head Sub head

Cash and Bank balance Current assets Cash & cash equivalent

Goodwill/ Mining Non current assets Property, Plant and

rights/Patents/Trade Equipment's and intangible
marks/License assets – Intangible Assets
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 FINANCIAL
STATEMENTS
OF A COMPANY
XII ACCOUNTANCY
(2022- 2023 )
PART- 2
Operating cycle
Q.1) Classify the liabilities (trade payables) given below as non-current
liabilities and current liabilities giving reasons for such classification:

Case Particulars Operating cycle Expected period of

(in month) payment (in months)
i Trade payables 11 8
ii Trade payables 10 12
iii Trade payables 10 15
iv Trade payables 18 15
v Trade payables 18 24
vi Trade Payables 15 13
 Statement of profit or loss
Particulars Note.no CY PY
I. Revenue from operations
II. Other income
III. Total revenue (I+II)
IV. Expenses
a) Cost of material
b) Purchase in stock in trade
c) Change in inventories
d) Employees benefit expenses
e) Finance cost
f) Depreciation and amortization expenses
Total expenses
V. Profit before tax (III-IV)
VI. Less : income tax
VII. Profit after tax (V-VI)
 LIMITATIONS OF FINANCIAL STATEMENTS

1. Historical records
2. Affected by estimates
3. It Leads to window Dressing
4. Qualitative elements are ignored
5. Ignore price level changes
USERS OF ACCOUNTING INFORMATION
 Users of Accounting Information
INTERNAL USERS EXTERNAL USERS
Management Shareholders
Employees
Govt./ tax authorities
Creditors & Bankers
Investors & Potential investors
Financial Analysist
Public & Reasearchers
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 ANALYSIS OF
FINANCIAL
STATEMENTS
OF A COMPANY
XII ACCOUNTANCY
(2022- 2023 )
 Analysis of financial statements is a systematic process of analysing the
financial information in the financial statements to understand and take
economic decisions.
 Tools of analysis of Financial statement

1) Comparative and common

size statements
2) Ratios analysis
3) Cash flow statement
 Types of financial statement Analysis
a) External analysis:- external analysis is conducted by those who do not have
access to the detailed records of an enterprise and therefore have to
depend on published account i.e., statement of profit and loss, balance
sheet, directors and auditors reports. Such type of analysis is made by
investors, lenders, creditors, government agencies and research scholars

b) Internal analysis:- internal analysis is conducted by the management to

know the financial position and operational efficiency of the organization.
The important features of such analysis is the management has access to all
information of the enterprise and , therefore the analysis is more detailed
extensive and accurate
c) Horizontal (or dynamic) analysis :- This analysis is made to review and
Analyse financial statements for a number of years. It is a time series analysis.
It show comparison of financial data for several years against a chosen base
year. It is useful for trend analysis and long –term planning. Comparative
statements or comparative financial statements are examples of horizontal
analysis

d) Vertical ( or static) analysis :- This analysis is made to review and analyse the
financial statements of one year only. It is a cross-sectional analysis. Ratio
analysis of the financial statement relating to a particular accounting year is an
example of this type of analysis. Such an anlysis is useful in comparing the
performance of several companies of the same type or divisions or
departments in one enterprise
e) Intra firm comparison : A comparison of financial variables of an enterprise
over a period of time is known as intra firm comparison. It is also called time
series analysis or trend analysis

f) Inter firm comparison : it compares financial variables of two or more

enterprises or firms to determine their competitive positions. When single set
of statements of two firms is compared it known as cross sectional analysis
 Limitations of financial statements analysis
1) Historical analysis
2) Ignores price level changes
3) Qualitative aspects ignored
4) Suffers form the limitations of financial statements
5) Not free from bias
6) Window dressing
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