The chapter "Analysis of Financial Statements" in CBSE Class 12 Accountancy provides a comprehensive understanding of various techniques used to analyze financial statements. It covers the importance, tools, and limitations of financial analysis, helping students develop the skills to interpret and assess the financial health of a business.
Introduction to CBSE Class 12 Accountancy Chapter "Analysis-of-Financial-Statements"
This chapter explains the meaning and significance of financial analysis, emphasizing its role in evaluating the financial performance and position of a company. It introduces several techniques used in financial statement analysis, including:
- Common Size Financial Statements: These statements display items as percentages of a common base figure, facilitating comparison between companies or time periods.
- Trend Analysis: This technique involves analyzing financial data over multiple periods to identify trends and predict future performance.
- Comparative Financial Statements: These statements present data for multiple periods side-by-side, highlighting changes and trends.
- Cash Flow Statement: This statement provides information on cash inflows and outflows from operating, investing, and financing activities.
- Fund Flow Statement: This statement shows the movement of funds within a business, indicating the sources and uses of funds.
- Ratio Analysis: This technique uses ratios to evaluate the relationship between different financial statement items, assessing liquidity, profitability, and solvency.
Assignments for CBSE Class 12 Accountancy Chapter “Analysis-of-Financial-Statements”
- Short Questions:
- List the techniques of financial statement analysis.
- Distinguish between vertical and horizontal analysis of financial data.
- State the meaning of analysis and interpretation.
- Long Questions:
- Describe the different techniques of financial analysis and explain their limitations.
- Explain the usefulness of trend percentages in interpreting the financial performance of a company.
- What is the importance of comparative statements? Illustrate with reference to a comparative income statement.
- Numerical Questions:
- Prepare a common size balance sheet for given data.
- Prepare a comparative income statement for provided financial information.
- Calculate various financial ratios from the provided balance sheet and income statement data.
Conclusion The chapter “Analysis of Financial Statements” equips students with essential tools and techniques to evaluate and interpret financial data. Understanding these methods enables students to assess a company’s financial health, aiding in decision-making and strategic planning.
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Questions and Answers for CBSE Class 12 Accountancy Chapter "Analysis-of-Financial-Statements"
Q1: What are common size financial statements? ANS: Common size financial statements display items as percentages of a common base figure, facilitating comparison between companies or periods.
Q2: What is trend analysis? ANS: Trend analysis involves analyzing financial data over multiple periods to identify trends and predict future performance.
Q3: Define comparative financial statements. ANS: Comparative financial statements present data for multiple periods side-by-side, highlighting changes and trends.
Q4: Explain the importance of financial analysis. ANS: Financial analysis helps in determining the financial viability, profit-earning capacity, and solvency of a firm, and aids in decision-making and strategic planning.
Q5: What is ratio analysis? ANS: Ratio analysis uses ratios to evaluate the relationship between different financial statement items, assessing liquidity, profitability, and solvency.
Q6: How are cash flow statements useful? ANS: Cash flow statements provide information on cash inflows and outflows from operating, investing, and financing activities, showing how cash is generated and used.
