Tag: elements of accounts

Questions Related to elements of accounts

Balance sheet does not disclose information relating to ___________.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. asset

  2. loss of markets

  3. liabilties

  4. investment

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Correct Option: B
Explanation:

Financial statements of the company record the assets at historical cost and not at market price. They fail to record the profit/loss that arise from the fluctuations in the market price of the assets. Hence, we can say that the financial statements do not show the complete picture of the business.  

Financial statements provide information to _________ in taking important decision related to the value of investment.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. owners

  2. managers

  3. shareholders

  4. directors

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Correct Option: C
Explanation:

Shareholders of companies are interested in knowing the status, safety and return on their investment. 

They may also need information to take decision about continuation or discontinuation of their investment in the business. Financial statements provide information to the shareholders in taking such important decisions.

Pooling of interest method is applicable for amalgamation in the nature of _____.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. Merger

  2. Consolidation

  3. Reconstruction

  4. Realization

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Correct Option: A
Explanation:

Pooling of interest method is applicable for amalgamation in nature of merger, because Amalgamation in nature of merger is the former method where the two balance sheets are consolidated and a new balance sheet is made. Thereby said as in nature of merger. This method considers historical costs and doesn't take into account intangible assets like Goodwill.

 Financial statements, provide the necessary information about the performance of the ____________.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. owner

  2. management

  3. emplyoee

  4. none of the above

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Correct Option: B
Explanation:

Financial statements provide necessary information about the performance of management. The financial statements show the financial position of an organisation, thereby telling if the policies, procedures and methods used by the management were useful or not. 

The gaps between the management performance and ownership expectations are understood through _________.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. cash flow statements

  2. financial statements

  3. fund flow statement

  4. income statement

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Correct Option: B
Explanation:

The financial statements show the financial position of an organisation, thereby telling if the policies, procedures and methods used by the management were useful or not. They show the gap between the actual performance by the management and the owner's expectation.  

 Importance of financial statements are _________.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. basis for granting of credit

  2. report on stewardship function

  3. basis for prospective investors

  4. all of the above

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Correct Option: D
Explanation:

The financial statements of a company show the financial position of an organisation and helps in comparison with the past results. The financial statements helps the credit lending institutions to understand the liquidity, solvency of the company and thereby helping them with the decision to whether grant credit or not. The steward is a person who manages the resources and financial statements helps to understand if resource utilisation was useful or not. The investors of the company want to know whether the company will be profitable or not. 

 Following are limitations of financial information ________________.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. Helps stock exchanges

  2. Report on stewardship function

  3. Assets may not realise

  4. Aids trade associations in helping their members

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Correct Option: C
Explanation:

Financial statements have a lot of limitations one being that the financial statements show the assets at the historical cost and not the current market price. They do not record the fluctuations in the price, there by the profit or loss from the same is not taken into account. 

 From the following __________ limitations of financial statements.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. bias

  2. assets may not realise

  3. vital information missing

  4. all of the above

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Correct Option: D
Explanation:

Financial statements are very important for a business but it has many limitations being personal bias, assets may not realise, vital or qualitative information missing. The financial statements may be affected by personal bias as the person making the statements is a human being. Financial statements do not show detailed information about every transaction and they also do not record the qualitative information. The statements only record quantitative information.

 Financial statements help the investors to assess __________solvency.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. fixed

  2. immediate

  3. current

  4. long term

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Correct Option: D
Explanation:

Investors are the owners of the company. Financial statements help them to assess the long term solvency of the business in which they have invested. They asses whether they will get fair returns or not for the money they have invested in the business.  

The financial statements enable the stock brokers to take decisions about the ______________.

elements of accounts introduction of financial statement of company general instructions for preparation of balance sheet tools of financial statements uses, importance, and limitation of financial statements

  1. cost to be charge

  2. prices to be quoted

  3. both of the above

  4. none of the above

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Correct Option: B
Explanation:

The financial statements help the investors to calculate market price of the shares. Market price of shares is determined by the net income of the company for equity share holder. This income is basically after deducting all interest, tax, dividend of preference shareholders etc,. divided by the number of equity shares.