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Question
‘Financial statements are prepared based on past data’. Explain how this is a limitation.
Solution
The nature of the financial statement is historical. Past cannot be the index of the future and cannot be cent percent basis for future estimation, forecasting, budgeting, and planning.
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RELATED QUESTIONS
What is meant by 'Analysis of Financial Statements'? State any two objectives of such an analysis.
State the significance of analysis of financial statements to ‘Top Management’.
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| Case | Operating cycle Period (months) | Expected realization period (months) |
| 1 | 10 | 11 |
| 2 | 10 | 12 |
| 3 | 10 | 13 |
| 4 | 14 | 13 |
| 5 | 15 | 16 |
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| ₹ | ₹ | |||
| General Reserve | 3,000 | Fixed Assets: Tangible Assets (Cost) | 9,000 | |
| 8% Debentures | 3,000 | Other Current Liabilities | 2,500 | |
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Choose the appropriate alternative from the given options:
Which of the following is a limitation of financial analysis?
Which of the following statements are false?
- When all the comparative figures in a balance sheet are stated as percentage of the total, it is termed as horizontal analysis.
- When financial statements of several years are analysed, it is termed as vertical analysis.
- Vertical Analysis is also termed as time series analysis.
Consider the following statements.
Statement 1 - "Facts and figures presented in financial statements are based on personal judgements"
Statement 2 - "Facts and figures presented in financial statements are not at all based on personal judgements"
The financial statements of a business enterprise include ______.
