Questions and Answers of Accounting Financial Analysis

Explain the concept of going concern.
What is the difference between manufacturing account and trading account?
Write short notes on: i. Intangible assets, ii. Fixed assets, iii. Current assets.
What is the difference between trading and profit loss account and the balance sheet of an organization.
What is the difference between trial balance and balance sheet?
What is the object of the trial balance? Why it is prepared? Is it essential to prepare a trial balance under double entry accounting system?
Explain the limitations of the trial balance.
What is the difference between journal and general ledger?
What is the difference between single entry and double entry book-keeping systems of accounting?
What are the golden rules of debit and credit in respect of various types of accounts?
Distinguish between capital expenditure and revenue expenditure. Explain with suitable examples in respect of both.
The profit and loss of a company is normally divided into three sections. Explain the objective behind it.
‘The Companies Act, 1956, under Schedule VI, lays down that the profit and loss account shall be so made out as to clearly disclose the result of the working of the company during the period
Give four examples of extraneous sources of income, which are shown in the profit and loss account.
What does a balance sheet communicate? Explain the limitations of the balance sheet, if any.
What are the components of the final accounts of an organization? Explain the significance of each component. What is meant by reserve and provision? Explain with suitable illustrations.
What do you understand by inflation accounting?
Explain the limitations of the historical cost accounting method vís-a-vís inflation accounting.
How can changes in the price level be reflected in the financial statements through the current purchasing power method?
Explain the concept of current cost accounting method.
State with reason whether the following statements are true or false.i. Goods amounting to Rs 6,000 taken by the proprietor for personal use should be credited to purchase account.ii. Rent paid
Explain the statement ‘accounting ratios are like statistics that have a set of principles and finality about them which at times may be misleading’.
Define accounting ratios and explain their importance as well as their limitations.
What are the ways in which debt–equity ratio can be computed? What does this ratio signify and in your opinion what should be the ideal debt–equity ratio?
Distinguish between current ratio, quick asset ratio and cash position ratio?
How is the debtors turnover ratio helpful in controlling credit facility?
What do you understand by:i. Profitability ratios ii. Turnover ratios iii. Debt–equity ratios iv. Liquidity ratios v. Return on investment ratio
Write notes on:i. Stock turnover ratio ii. Working capital ratios iii. Net profit ratios iv. Payout ratios v. Operating ratios
What is the need of financial analysis? How does the ratio analysis technique help in the financial analysis?
‘Accounting ratios are a mere guide and complete reliance on them in decision-making may be suicidal’. If agreed, give reasons.
What are the ratios required to be computed in order to study the long-term financial strategies?
‘The figure of net profit is a measure of ability, skill, aggressiveness and ingenuity of the management to operate a business successfully for its main purpose. Into this one final mathematical
‘The figure of net profit is a measure of ability, skill, aggressiveness and ingenuity of the management to operate a business successfully for its main purpose. Into this one final mathematical
‘The Company’s Act 1956, under Schedule VI, lays down that the profit and loss account shall be made out so clearly as to disclose the result of the working of the company during the period
What do you understand with the term Gross Profit and Net profit? How are these different from each other?
Ratio analysis is the measure of strengths and weaknesses of an organization. Do you agree? Discuss your point of view by giving suitable examples.
What do you understand by Financial Analysis? Discuss its objectives.
Discuss various Accounting Ratios which an organization uses to ascertain the Solvency Position.
What do you understand by the funds flow statement?
Differentiate between the funds flow statement and the balance sheet.
What do you understand with the term 'gross working capital'?
What is net working capital? How is it computed?
What are the steps required to construct a funds flow statement?
While constructing funds flow statement, what are the two basic statements?
Is increase in working capital a source of funds or an application of funds?
‘A funds flow statement is a better substitute for an income statement.’ Examine the statement by giving suitable examples.
What are the effects of the following transactions on the flow of funds?i. Purchases of plant and machinery costing Rs 1,50,000.ii. Purchase of raw materials for an amount Rs 2,00,000.iii.
The owner of a small manufacturing company is confused after going through the account statements.The accountant of the company has informed the owner that the company’s net increase is negligible
The managing director of Sky Lark Products Limited, believes that something is wrong with the financial statement for the year 2004. The company’s income statement shows a net loss of Rs 37,400,
What do you understand with the cash flow statement?
Discuss various items which are included as sources of cash and applications of cash while prepararing the cash flow statement.
Differentiate between funds flow statement and cash flow statement.
What is a cash flow statement? What is meant by the terms ‘cash’, ‘cash equivalents’ and ‘cash flows’ in the context of the cash flow statements?
What do you understand by i. Operating activities?ii. Investment activities?iii. Financing activities?
What are the recommendations of accounting standards-3 (revised) regarding classification of cash flows arising from interest and dividends received and paid?
How does the direct method of calculating cash provided or used by operating activities differ from the indirect method of making this calculation?
Explain the points of distinction between cash flow statement and income statement.
How does funds flow statement differ from cash flow statement?
Distinguish between i. Income statement and funds flow statement.ii. Statement showing changes in working capital and funds flow statement.
Explain the term ‘working capital’.
Prepare a statement of sources and application of funds for the Star Semiconductor Corporation Limited(SSCL).Star Semiconductor Corporation Limited (SSCL) is a reputed manufacturer of semiconductors
If the same trend of sales and growth rate continues in the year 2006, what financial problems are likely to be faced by the corporation?Star Semiconductor Corporation Limited (SSCL) is a reputed
The managing director and the director (finance) of a chain of multiplex commercial complex, established under the name and style M/s Wave Multiplex Commercial Complex (WMCC), are having a difference
Prepare the balance sheet of Ranjan’s Café as on 15 August 2004. You can consider the events described in the case.
Prepare the balance sheet as on 16 December 2004.
What are the equities of Mr and Mrs Sharma and Mrs Aggarwal?
As Mr Thakur, be prepared to describe to Mr Gupta what the finance controller’s function will be in the proposed venture, SCPP.Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large
What overall financial advise would you give to Mr Gupta? What are the financial pitfalls which the venture could face?Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at
How much compensation should each of the three promoters receive by way of salary?Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at Lucknow. He has been working with
What would be a fair method of dividing the ownership in the venture?Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at Lucknow. He has been working with the company
If you were Mr Thakur, would you join the proposed venture? If yes, then why?Mr Rajeshwar Thakur, B.Sc., is working as finance director in a large company at Lucknow. He has been working with the
What are the strengths and weaknesses of Benazir Rivet Company (BNC) based on the ratio analysis of its financial statements?Benazir Rivet Company (BRC) is one of the largest rivet manufacturing
How does the company compare with the prevailing norms of the rivet industry?Benazir Rivet Company (BRC) is one of the largest rivet manufacturing companies having a high market reputation on the
As an independent financial advisor, what suggestions would you give to the management to strengthen the company?Benazir Rivet Company (BRC) is one of the largest rivet manufacturing companies having
Analyze the problems being faced by the SEC.The managing director of Sporty Equipment Company (SEC) was surprised to observe that there was a decrease in the working capital for 2005 when he reviewed
What would you suggest as remedial measures to win over the present problems?The managing director of Sporty Equipment Company (SEC) was surprised to observe that there was a decrease in the working
Prepare a cash flow budget for SACCL for the next four months.Sales for SACCL were as follows in the last four months of 2005:April 2005 Rs 2,60,000 May 2005 3,00,000 June 2005 3,80,000 July 2005
How much funds will SACCL have to borrow to maintain its production level and minimum cash balance at the bank?Sales for SACCL were as follows in the last four months of 2005:April 2005 Rs 2,60,000
What action can you suggest to the management of the SACCL to reduce its requirement to borrow funds?Sales for SACCL were as follows in the last four months of 2005:April 2005 Rs 2,60,000 May 2005
LDDS suffered from high fixed costs coupled with a lack of technical knowledge and expertise in optimizing the configuration of circuits, which resulted in high line costs.True/False
WorldCom overstated its sales by holding its books open at the close of a reporting period.True/False
LDDS continued to publicly report increasing profits and sales in the financial statements, which allowed it to acquire more companies with no limit to the growth of its stock price.True/False
WorldCom overstated its earnings by improper accounting for multiple element contracts.True/False
If a company overstates merger reserves at the time of acquiring another company, it can release the surplus reserves into earnings in a later period without decreasing net income at the time of the
Ebbers and Grubman had no knowledge of the technicalities of the Internet, the Internet traffic, or the workings of the telecom industry, which led them to overestimate the demand for the Internet
WorldCom prepared its financial statements to meet the expectations of securities analysts despite needing to report actual earnings and accurate financial results.True/False
If the notes to the financial statements indicate that a company is capitalizing costs that other companies in the same industry recognize as expenses, it is a signal that the company is capitalizing
Special charges in the income statement that write off previously capitalized costs are always a sign that a company has become conservative in recognizing earnings and that the quality of its
If a parent company discovers that the assets of an acquired company are worth less than it believed at the time of the acquisition, it is appropriate to increase goodwill because this means that the
The opportunity for the creation of WorldCom was the court-ordered breakup of ________________, which was then forced to lease long-distance phone lines.
WorldCom’s Bankruptcy Examiner alleged that WorldCom’s ________________ was the fuel that kept its acquisition engine running.
After all the acquisitions, many companies had been added to WorldCom’s collection without any ________________. There was little liaison between the companies, and much of the work was
When a company overstates reserves at the time of acquisition, in later periods, it can release the ________________ reserves back into earnings.
Adjustments that increase ________________ in a later period, with respect to an earlier acquisition, are further signs that a company may be creating false reserves.
Investors should be wary of large ________________ - ________________ charges in the income statement around the acquisition period because these are often signals that the company could be creating
The misallocation of expenses as assets is known as the improper ________________ of expenses.
WorldCom was a collection of out-of-focus ________________ of companies in which Ebbers was controlling every minute detail without any plan for all the acquisitions.
After WorldCom acquired UUNet, it had broadband and networks all over the world and had become a ________________ provider of Internet access and data transmission.
As a result of acquiring MCI, WorldCom had two billing systems, so employees would switch existing customers to the other system and get ________________ commission for the new account.
WorldCom is presented in this textbook as an illustration of overstating earnings by:(a) Holding books open after the close of a reporting period.(b) Misuse of multiple element contracts.(c) Improper

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