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7.analysis of Financial Statements and Accounting Ratios
7.analysis of Financial Statements and Accounting Ratios
7.analysis of Financial Statements and Accounting Ratios
SUBJECT: ACCOUNTANCY
Q LEARNING QUESTIONS M
NO OUTCOME AR
/ASSESSME KS
NT
OBJECTIVE
1 LO: WILL MCQ WITH ASSERTION –REASON BASED QUESTIONS: 1
BE ABLE THE ANSWER OF ASSERTION REASON BASED QUESTION IS GIVEN IN 4
TO OPTIONS IN FOLLOWING ORDER :
COMPARE A) BOTH ASSERTION (A) AND REASON ® ARE TRUE AND R IS
BOTH THE CORRECT EXPLANATION OF ASSERTION (A)
STATEMEN B) BOTH A AND R ARE TRUE BUT R IS NOT THE CORRECT
TS AND EXPALANATION OF A
CONCLUDE C) A IS TRUE BUT R IS FALSE
THE TRUE D) BOTH A AND R ARE INCORRECT OR FALSE
MEANING ASSERTION: THE POTENTIAL INVESTORS ARE ALSO INTERESTED IN
OF ANALYSIS OF FINANCIAL STATEMENTS
ASSERTIO REASON: THEY ARE INTERESTED IN SAFETY TO THEIR CAPITAL
N APPRECIATION OF THEIR CAPITAL IN THE LONG RUN AND
AO: TO REGULARITY OF ADEQUATE DIVIDEND PAYMENT IN THE SHORT RUN
MAKE A) OPTION A
THEM B) OPTION B
KNOW THE C) OPTION C
INTEREST D) OPTION D
OF
STAKEHOL
DER
2 LO: ABLE ASSERTION: CREDITORS ARE ASO INTERESTED IN ANALYSIS OF 1
TO FINANCIAL STATEMENTS OF COMPANY
CORELATE REASON: SINCE THEY PROVIDE SHORT TERM CREDIT SO INTERESTED
BOTH TO KNOW SHORT TERM SOLVENCY
STATEMEN A) OPTION A
TS WITH B) OPTION B
THOUROU C) OPTION C
GH D) OPTION D
KNOWLED
GE
AO: TO
ASSESS
UNDERSTA
BNDING
ROLE OF
BORROWE
D FUND
3 LO: KNOW ASSERTION: TAX AUTHORITIES ARE ALSO INTERESTED IN ANALYSIS 1
ROLE OF OF FINANCIAL STATEMENTS
TAX REASON: THEY ARE INTERESTED IN KNOWING THE OPERATING
AUTHORITI PERFORMANCE OF THE COMPANY AS IT COLLECTS VARIOUS TAXES
ES LIKE GST ETC.
AO: TO A) OPTION A
ASSES B) OPTION B
UNDERSTA C) OPTION C
NDING OF D) OPTION D
EXTERNAL
USERS
4 LO: ABLE ASSERTION: FINANACIAL INSTITUTINS ARE ALSO INTERESTED IN 1
TO THE ANALYSIS OF FINANCIAL STATEENTS
CORELATE REASON: THEY ARE INTERESTED IN KNOWING ABOUT LIQUIDITY
BOTH POSITION, SOLVENCY POSIYION AND PROFITABILIY POSITION OF THE
STATEMEN COMPANY.
TS WITH
THOUROU
GH
KNOWLED A) OPTION A
GE B) OPTION B
AO: TO C) OPTION C
ASSESS D) OPTION D
UNDERSTA
BNDING
ROLE OF
BORROWE
D FUND
5 LO: ABLE RAMESH CANNOT CONVERT STOCK AND PREPAID EXPENSES INTO 1
TO KNOW CASH IN ONE YEAR. UNDER WHICH ASSETS HE WOULD CATEGORIZE
MEANING THEM:
OF ASSETS
AO: TO 1) CURRENT ASSETS
CATEGORI 2) NON CURRENT ASSETS
ZE 3) LIQUID ASSETS
DIFERENT 4) NONE OF THE ABOVE
ASSETS
6 LO: ABLE WHEN RAM SOLD GOODS IN CASH AS WELL AS CREDIT, THIS WILL 1
TO INCREASE HIS:
CALCULAT
E 1) CURRENT RATIO
AO: ABLE 2) LIQUID RATIO
TO KNOW 3) BOTH RATIOS
CHANGES 4) NONE OF THE ABOVE
IN CASH
FLOW AND
ITS
TREATMEN
T
140000
GROSS PROFIT
120000
NET PROFIT
SALES
40000
20000
1 ANS 1- OPTION A 1
2 ANS 2- OPTION A 1
3 ANS 3- OPTION A 1
4 ANS 4- OPTION A 1
5 ANS 5- 3 1
6 ANS 6- 3 1
7 ANS7- COMPARATIVE STAEMENTS/COMON SIZE STATEMENTS/RATIO ANALYSIS/CREDITORS 1
8 ANS 8- 28.57% 1
10 ANS-10 – A 1
11 ANS 11 – LET COST OF GOODS SOLD BE 100 AND G P 25 THEREFORE REVENUE FROM OPERATIONS 3
WILL BE 125.
THUS 500000X125/25 = 2500000
WORKING CAPITAL = SHARE CAPITAL +RESERVE+LONG TERM LOAN – NON CURRENT
ASSETS=500000
WORKING CAPITAL = REVENUE FROM OPERATION /WORKING CAPITAL
2500000/500000= 5 TIMES
12 ANS 12- 4 3
13 ANS 13-1) IGNORES PRICE LEVEL CHANGES 3
2) AFFECTED BY WINDOW DRESSING
3) AFFECTED BY PERSONAL ABILITY AND BIASNESS OF THE ANALYST (ANY OTHER TOO)
20 ANS 20- 6