NCERT Solutions for Class 12 Accountancy II Chapter 3 Financial Statements Of A Company

Ans : A critical and thorough examination of the financial statements of a company in order to understand the data contained in it, is known as 'Financial Statement’. It helps in identifying and understanding the financial strengths and weaknesses of a business so that financial results can be drawn. 

Ans : Limitations of financial statement are given below. 
1. Ignores Changes in the Price level The financial analysis fails to capture the change in price level. The figures of different years are taken on nominal values and not in real terms (i.e. not taking price change into considerations). 
2. Misleading and Wrong Information The financial analysis fails to reveal the change in the accounting procedures and practices. Consequently they may provide wrong and misleading information. 
3. Interim and Final Picture The financial analysis presents only the interim report and thereby provides incomplete information. They fail to provide the final and holistic picture. 
4. Ignores Qualitative and Non-monetary Aspects The financial analysis reveals only the monetary aspects. In other words, these analyses consider only that information that can be expressed only in monetary terms. These analyses fail to disclose managerial efficiency, growth prospects, and other non-operational efficiency of a business. 

Ans : Objectives of Financial Statements 
The following are the various objectives for preparing financial statements. It enables the conduct of meaningful comparisons of financial data. It provides better and easy understanding of the changes in the financial data overtime. It helps in designing effective plans and better execution of plans by enabling control and checks over the use of the financial resources. Analysis of Financial Statements helps to know the earning capacity and profitability of a business firm. It also measures the efficiency of the business operations. 

Ans : (i) Shareholders— They are interested in assessing the profitability and viability of the capital invested by them in the business. The financial statements prepared by the business concerns enable them to have sufficient information to assess the financial performance and financial health of the business. 
(ii) Creditors— These are those individuals and organisations to whom a business owes money on account of credit purchases of goods and services. Hence, the creditors require information about the creditworthiness and liquidity position of the business. 
(iii) Government— It needs information to determine various macroeconomic variables such as national income, GDP, industrial growth, etc. The accounting information assist the government in the formulation of various policies measures and to address various economic problems such as unemployment, poverty, etc 
(iv) Investors— These are the parties who have invested or are planning to invest in the business of an enterprise. Hence, in order to assess the viability and prospects of their investments, they need information about the profitability and solvency position of the business 

Ans : Disclosure of various items in the Balance Sheet of a company is given below.