Accountancy : Company Accounts and Analysis of Financial Statements 2007 CBSE [ All India ] Set II

A Cash flow statement is a statement which describes the inflow(source) and outflow(uses) of cash and cash equivalents in an enterprise during a specified period of time. Such a statement describes net effects of the various business transactions on cash and its equivalents and takes into account receipts and disbursements of cash.A cash flow statements summarise the causes of changes in cash position of business enterprise between dates of two balance sheets.

Dividends received on investments represents an inflow of cash. Such inflow does not arises out of operating activity of own business but from investment made in other business. Hence, such flow falls under Investing activity but not under operating activity.

The list of four points:

1. The amount of capital and how this capital will be contributed by each partner.
2. The proportion in which the partners will share profit and losses.
3. The amount of drawings which a partner can draw from the firm.
4. Will salary or remuneration or commission be allowed to any of the partner because of his working in the firm.

It refers to the part of the issued capital which has actually been subscribed by the public and subsequently allotted to them by the directors of the company which are fully paid or partially paid. The quantum of issue shall not exceed the amount specified in the prospectus of offer.

When the number of shares applied per exceeds the number of shares issued, the shares are said to by over-subscribed. In such situation, the directors allot shares on the basis of a reasonable criterion. They can make allotment in any of the following ways:-

1. Full allotment on some applications and on allotment on others.
2. Full allotment on some applications and part allotment without any criteria on others.
3. Pro-rata allotment on all or some applications.

Irredeemable Debentures are those debentures, which are retained as a part of the permanent capital structure of the company. They are also known as perpetual debentures. They are not refundable during the life time of the company. Such debt becomes for payment only the company lies into liquidation or when the payment of interest is not made regularly.

(i) Percentage of changes in sales

                   Percentage of change         = difference in sales / sales of 05  X 100

                                                          = 4,22,300 – 4,02,000 / 4,22,300 X 100

                                                          = 20,500 / 1,22,300 X 100 = 4.80%

Sales has been decreased by 4.80%

(ii) Percentage of change in cost of goods sold

Percentage of change = difference in cost of goods sold / Cost of goods sold 05 X 100

                                                           =        3,71,000 – 3,69,000 / 3,71,00 X 100

                                                           =        2000 / 3,71,000 X 100 = 5.390%

 Sales has been decreased by 5.390%

(i)  Percentage out Gross Profits

Percentage of changes in gross profit  = Difference in gross profit / gross profit 05 X 100

                                                     = 51,300-33,000 / 51,300 X 100

                                                     =  18,300 / 51,300 X 100 = 35.67%

Gross profit decreased by 35.67%

(i)                 Percentage of changes in Net Profit

Percentage of changes in Net Profit = Difference in net Profit / net profit 05 X 100

                                                     = 28,600 – 13,100 / 28,600 X 100

                                                     = 15,500 / 28,600 X 100 = 54.195%

Net Profit has been decreased by 54.195%

The advantages of analysis of financial statement are:

• The investors including existing and potential share holders can determine as to buy, sell or hold decisions regarding company equity.
• Creditors can assess the economic stability and vulnerability of the borrower.
• Employees for collective bargaining and for assessment of job security.