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AKGIM/FM/01

AJAY KUMAR GARG INSTITUTE OF MANAGEMENT SESSIONAL TEST 2 Subject: Accounting and Financial Analysis Section : A Time Allotted: 1 hour Section A Code: MB -107 Semester: I Maximum Marks: 30

Anwer 1 (a )Book keeping is an art of recording daily business transaction in a set of books. It records monetary aspects of business transactions. Book keeping is an art and science of recording sales, purchase, income, expenses, profit/loss of business in a systematic and methodical way. (b)Trial Balance is a statement of accounts which appear in the ledger showing either the balances or the total amounts of debit and credit items. It is prepared after having posted the journal entries into the ledger and balancing the accounts. Error of omission errors Error of commission Error of principle Compensating

(c )Going Concern Concept-According to this concept, it is assumed that business will continue for a long time i.e., for an indefinite period, Business transactions are recorded from this point of view. According to International Accounting Standards, An enterprise is norm ally viewed as a going concern that is continued operations for the foreseeable future (d )Current Ratio : Current Assets/Current Liabilities (e)It is a financial statement that states the financial position of the business. It lists the assets and liabilities of a business on a particular date Section-B Answer2 Cash flow from operating activities Net Profit Add deperication Goodwill written off Loss on sale of assets Add 12,50,000 25000 15000 12000

Decrease in B/r Decrease in stock Increase in B/p Less Decrease in o/s expense Increase in debtors Cash flow from operating activities

9500 4000 2500

(1000) ( 8800) 1308200

Answer 3Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis. Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements. The ratios analysis is the most powerful tool of financial statement analysis. Ratios simply means one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another. Answer 4Cash flow analysis is concerned with the change in cash position, while funds flow analysis is concerned with change in working capital between two balance sheet dates. Cash flow statement is merely a record of cash receipts and disbursements. While studying short term solvency of a business, one is interested not only in cash balance but also assets which can be easily converted to cash. Cash flow analysis is more useful as a tool for financial analysis in short periods as compared to funds flow analysis. Cash is part of working capital , hence inflow of cash results in inflow of funds but reverse is not true

Answer 5Gross profit ratio = Gross profit/Net sales *100 Rs 787500-Rs 395600/787500*100 =49.76% Stock turnover ratio = Cost of goods sold/Average Stock 395600/197800 = 2times Debt- equity ratio Rs 87000+ 125000/375000 =0.57:1

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