Page 46 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 3: Analysis of Financial Statements

3.7 Keywords Notes

Assets: Assets are economic resources owned by business or company.
Balance Sheet: A balance sheet or statement of financial position is a summary of a person’s or
organization’s balances.
Comparative Statements: Comparative statements are the financial statements which follow a
consistent format but which cover different periods of time. Comparative statements are very
useful for spotting trends.
Financial Statement: A written report which quantitatively describes the financial health of a
company.

Trend analysis: In trend analysis, financial ratios are compared over time, typically years.

3.8 Review Questions

1. From the following information, prepare a comparative income statement:
Particulars 2001 (`) 2002 (`)
Sales 10,00,000 8,00,000
Cost of goods sold 6,00,000 4,00,000
Administration Expenses 2,00,000 1,40,000
Other Income 40,000 20,000
Income tax 1,20,000 1,40,000
2. From the following table, prepare the common size statement analysis:
2000 (`) 2001 (`)
Sales 20,00,000 24,00,000
Miscellaneous Income 20,000 16,000
20,20,000 24,16,000
Materials consumed 11,00,000 12,96,000
Wages 3,00,000 4,08,000
Factory expenses 2,00,000 2,16,000
Office expenses 90,000 1,00,000
Interest 1,00,000 1,20,000
Depreciation 1,40,000 1,50,000
Profit 90,000 1,26,000
20,20,000 24,16,000
3. A company has owner’s equity of ` 1,00,000. It has supplied the following accounting
ratios:

Current Debt to Total Debt = 0.40
Total Debt to Owner’s Equity = 0.60
Fixed Assets to Owner’s Equity = 0.60
Total Assets Turnover = 2 times
Inventory Turnover = 8 times

With the information given above, you are required to prepare a summarised Balance
Sheet of the company.
4. How is an available-for-sale investment recorded on the financial statements?

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