Page 355 - VIRANSH COACHING CLASSES

(6) Static statement : Financial Statements are static in nature. They represent absolute figures.
They do not present the process by which the figures are arrived.
(7) Affected by window dressing : Sometimes management displays rosy picture through
financial statement. In order to show excellent profit sales may be increased, closing stock
may be overvalued, purchases at the end of the year may not be shown. This may be known as
window dressing It is clear from the above limitations that the result obtained from analysis of
Financial Statements should not be taken as true indicator of financial strength and weakness
of the business.
These limitations must be kept in mind while taking decisions on the basis of analysis of
Financial Statements.

Analysis of Financial Statements.
1. Balance Sheet: The balance sheet need to be arranged in vertical format which is suitable for
further analysis. Its format is given below :
.............. Company Ltd.
Balance Sheet as on ........................
Particulars Amount ` Amount `
I) Sources of Funds
A) Owners Fund/Shareholders Fund.
a) Share Capital
Equity share capital xxx
Preference share capital. xxx
b) Add : Reserves and surplus
Profit & Loss A/c xxx
General reserve xxx
Securities Premium. xxx
c) Less : Fictitious Assets xxx
Net Worth/Owners Fund. (xxx) xxx
B) Borrowed Funds
Bank Loan xxx
Debentures (xxx)
Total Fund Available xxx
II) Application of Funds
1) Fixed Assets xxx
Land and Building xxx
Plant and Machinery xxx
Furniture xxx
Vehicle. xxx xxx
2) Investment
3) Working Capital xxx
Current Assets
Quick Assets
Cash xxx
Bank xxx

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