Comparative income statement of Mary Co.Ltd for the years ended 31^st March, 2016 and 31^st March, 2017.

Note : Calculation of income tax:
For 2015 - 16: 2,00,000 x 20% = Rs.40,000
For 2016 - 17: 3,20,000 x 50% = Rs.1,60,000

(i) Financial statements are generally prepared at the end of an accounting period based on transactions recorded in the books of accounts.
(ii) These statements are prepared for the organization as a whole.
(iii) Information is presented in a meaningful way by grouping items of similar nature such as fixed assets and current assets.
(iv) Financial statements are prepared based on historical cost.
(v) Financial statements are prepared based on accounting principles and-Accounting standards which make financial statements Comparable and realistic.

(i)  As per a report of stewardship.
(ii)  As a basis for fiscal policy
(iii) To determine the legality of dividends
(iv)  As a guide to advise individual action.
(v)  As a basis for granting of credit
(vi) As a basis for taxation.
(vii) As an aid to Government supervision

The following are the main objectives of financial statement analysis.
(i) To estimate the earning capacity of the concern.
(ii) To judge the financial (both liquidity and solvency) position and financial performance of the concern.
(iii) To be determine the debt capacity of the concern
(iv) To decide about the future prospects of the concern

(i) Horizontal analysis
(1) When figures relating to several years are considered for the purpose of analysis, the analysis is called horizontal analysis.
(2) Comparative statements and trend percentages are examples of horizontal analysis.
(ii) Vertical analysis:
(1) When figures relating to one accounting year alone are considered for the purpose of analysis, the analysis is called vertical analysis.
(2) Preparation of common size statements and computation of ratios are examples of vertical analysis.

(a) Comparative statement
(i) A statement giving comparison of the net increase or decrease in the individual items of financial statements of two or more years of a business concern is called comparative statement.
(ii) It shows the actual figures at different periods of time, the increase or decrease in these figures in absolute terms and the percentages of such increase or decrease.
(b) Common srze statement:
(i) The common-size statements show the relationship of various items with some common base, expressed as percentage of the common base.
(ii) The common size statements include common-size income statement and common-size balance sheet.

Following are the limitations of financial statement analysis
(i) All the limitations of financial statements such as ignoring non-monetary information, ignoring price level chances, etc., are applicable to financial statement analysis also.
(ii) Expert knowledge is required in analysing the financial statements.
(iii) Interpretation of the analysed data involves personal judgement as different experts may give different views

Financial statement analysis may be done with any of the following objectives.
(i) To analyse the profitability and earning capacity.
(ii) To study the long term and short term solvency of the business.
(iii) To determine the efficiency in operations and use of assets.
(iv) To determine the trend in sales, production etc.
(v) To forecast for future and prepare budgets.
(vi) To make inter-firm and intra-firm comparisons.

The significance of financial statements to various stakeholders is as follows.
(i) To management:
Financial statements provide information to the management to take decision and to have control over business activities in various areas.
(ii) To shareholders:
Financial statements help the shareholders to know whether the business has potential for growth and to decide to continue their shareholding.
(iii) To creditors:
Creditors can get information about the ability of the business to repay the debts from financial statements.
(iv) To bankers:
Information given in the financial statements is significant to the bankers to assess whether there is adequate security to cover the amount of the loan or overdraft.
(v) To government:
Financial statements are Significant to government to assess the tax liability of business concerns and to frame and amend industrial policies.

Following are the features of financial statements.
(i) Financial statements are generally prepared at the end of an accounting period based on transactions recorded in the books of accounts.
(ii) These statements are prepared for the organisation as a whole
(iii) Information is presented in a meaningful way by grouping items of similar nature such as fixed assets and current assets.
(iv) Financial statements involve personal judgement in certain cases
(v) Financial statements are prepared based on historical cost.