Page 209 - DMGT104_FINANCIAL_ACCOUNTING

Unit 9: Analysis and Interpretation of Financial Statements

Notes
Total of Fixed Liabilities 9,500 13,400 3,900 æ 3900 ö
÷
ç è 9500 ×100 = 41.05
ø
Creditors 500 600 100 100
×100 = 20
500
Total Liabilities 10,000 14,000 4,000 4000
×100 = 40
10000

Interpretation
 During the current year the company has increased its fixed assets by 50% by issuing
shares and debenture i.e. 58.33%.
 There is an increase of 33.33% in investment, 21.43% in current assets, and 20% in current
liabilities and 500% in reserve and surplus.
 The financial position of the company is well.
2. Comparative Profit & Loss Account or Comparative Income Statement: The profit & loss
account gives the summary of the results of the business activities, but it does not convey
the changes in the earning of the business. The comparative income statement serves this
purpose. It shows the operating results for a number of accounting periods along with he
absolute and relative changes.
To prepare the comparative income statement, the same columns are drawn as in the case
of comparative balance sheet. First two columns are kept for the original figures and next
two for the changes and percentage changes.

3. Comparative Statement of Cost of Production: Comparative statement of cost of production
is prepared to analyse and interpret the cost and its components. It is the part of comparative
income statement. This statement is prepared to show the absolute change in the different
elements of cost and the relationship of the different elements of cost with total cost of
production. On the basis of this statement, the cost of production is controlled.
The first two columns of this statement are kept for the actual figures of cost of two periods
and the next two columns shows the percentage of each element of cost with total cost of
production. Last two columns show the increase and decrease with their percentages. This
is explained in the following examples:

Illustration 2: Following is the statement of cost of goods manufactured by Raj Co. Ltd. present
the data in suitable form for analysis:

2007 2006
( ) ( )
Raw materials:
Opening Stock 46,000.00 42,000.00
Purchases 4,74,000.00 4,30,000.00
5,20,000.00 4,72,000.00
Less: Closing Stock 52,000.00 46,000.00
Add: Material Consumed 4,68,000.00 4,26,000.00
Direct Labour 6,32,000.00 5,06,000.00
Manufacturing Expenses 2,84,000.00 2,42,000.00
13,84,000.00 11,74,000.00

Valuation of Goods in Process of Stock: Contd...
Opening of year 28,000.00 26,000.00
Closing of year 32,000.00 28,000.00
Increase 4,000.00 2,000.00
Cost of Goods Manufactured 13,80,000.00 11,72,000.00
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