Financial Statement Analysis Solved Papers May' 2020, Dibrugarh University B.Com 6th Sem

Financial Statements Analysis Solved Question Paper May' 2020
COMMERCE (Speciality)
Course: 602 (Financial Statement Analysis)
Full Marks: 80
Pass Marks: 24
Time: 3 hours

1. (a) State whether the following statements are True or False:               1x4=4

1) Fund flow and Cash flow statements are the part of Financial Statement.

Ans: True

2) Return on Capital Employed measures profit earning capacity of an enterprise.

Ans: True

3) The Corporate Governance rules were notified on March 25, 2014 under Companies Act, 2013.

Ans: False, 31st March 2014

4) According to IRFS, Banking Companies are to adopt Historical Value Accounting.

Ans: False, Fair value

(b) Fill in the blanks with appropriate word(s):  1x4=4

1) EVA = _______ – Taxes Paid – (Capital Employed x WACC) (Operating Profit / Sales / Direct Incomes)

Ans: Operating Profit

2) Rule of thumb for acid-test ratio is _______. (1: 1 / 2: 1 / 2: 2)

Ans: 1:1

3) The GRI first released its sustainability reporting guidelines in _______. (1998 / 1999 / 2000)

Ans: 2000

4) As per the IRDA regulations, 2002, all the _______ companies shall comply with the requirements of Schedule A while preparing their financial statements. (general insurance / life insurance / general and life insurance)

Ans: life insurance

2. Write short notes on any four of the following:            4x4=16

(a) Value Added Statement (VAS).

Ans: Value Added Statement is a financial statement that depicts wealth created by an organization and how is that wealth distributed among various stakeholders. The various stakeholders comprise of the employees, shareholders, government, creditors and the wealth that is retained in the business. As per the concept of Enterprise Theory, profit is calculated for various stakeholders by an organization. Value Added is this profit generated by the collective efforts of management, employees, capital and the utilization of its capacity that is distributed amongst its various stakeholders. Consider a manufacturing firm. A typical firm would buy raw materials from the market. Process the raw materials and assemble them to produce the finished goods. The finished goods are then sold in the market. The additional work that the firm does to the raw materials in order for it to be sold in the market is the value added by that firm. Value added can also be defined as the difference between the value that the customers are willing to pay for the finished goods and the cost of materials.

Advantages of a Value Added Statement

a)       It is easy to calculate.

b)      Helps a company to apportion the value to various stakeholders. The company can use this to analyze what proportion of value added is allocated to which stakeholder.

c)       Useful for doing a direct comparison with your competitors.

d)      Useful for internal comparison purposes and to devise employee incentive schemes.

(b) Leverage Ratios.

Ans: Leverage Ratios: These ratios show relationship between proprietor's fund and debts used in financing the assets of the business organization. Example: Capital gearing ratio, debt-equity ratio, and proprietary ratio. This ratio measures the relationship between proprietor’s fund and borrowed funds.

(c) Harmonization of Corporate Reporting.

Harmonization may be defined as the process aimed at enhancing the comparability of financial statements produced in different countries’ according regulations. Having understood the causes for differences and suitably classifying the accounting system across the world, it is necessary to achieve harmony or uniformity in the accounting system. Harmony will ensure easy comparability, which is essential in the context of global funding and multi-national company’s regulators who monitor capital markets, and the securities industries (including stock exchanges). The Global Reporting Initiatives’ (GRI) vision is that reporting on economic, environmental, and social performance by all organizations becomes as routine and comparable as financial reporting. GRI accomplishes this vision by developing, continually improving, and building capacity around the use of its Sustainability Reporting Framework.

(d) Provisions of IFRS-4: Insurance Contract.

Ans: IFRS 4 - Insurance contracts: An insurance contract is that where one party (the insurer) accepts the insurance risk of another party (the policy holder) by agreeing to reimburse the amount of policy to the policy holder if any specified uncertain future events occur and adversely affect the policy holder. The primary objective of this IFRS for an entity is to determine the financial reporting for the issued insurance contracts (described in this IFRS as an insurer) until the Board completes the second phase of its project on insurance contracts.

(e) Demand and Time Liability (DTL).

Demand liabilities are those liabilities which are to be paid as and when demanded by the consumers. Deposit in saving banks and current accounts are demand liabilities because banks have to pay them to their customers as and when demanded.

Time liabilities are those liabilities which are to be paid on completion of a specified period. For Example, if bank fixed deposit for done for 12 months, it becomes a time liability payable after completion of 12 months.

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Financial Statements Analysis Solved Question Paper 2014

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3. (a) “Financial Statement reflects a combination of recorded facts, accounting conventions and personal judgement.” Discuss. 14

Ans: Financial statements are the summarized statements of accounting data produced at the end of accounting process by an enterprise through which accounting information are communicated to the internal and external users.

The American Institute of Certified Public Accountants states the nature of financial statements as “Financial Statements are prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the status of investment in the business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting principles and personal judgments.”

In the words of Myer,” The financial statements provide a summary of accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and income statement showing the result of operations during a certain period”.

Nature of Financial Statements:

The nature of financial statements is the combination of the following forms:

a)       Recording facts of a business transactions;

b)      Accounting Conventions;

c)       Accounting Concepts;

d)      Legal implications

e)      Personal judgments used in the application of conventions and postulates.

a)       Recorded Facts: The Financial statements are statements prepared on the basis of recorded facts; they do not depict the unrecorded facts. Recorded facts means recording of transactions based on evidence in the accounting books.

b)      Accounting Conventions: Certain accounting conventions are followed while preparing financial statements such as convention of ‘Conservatism’, convention of ‘Materiality’, convention of ‘Full disclosure’, convention of ‘Consistency’. According to convention of ‘Conservatism’, provisions are made of expected losses but expected profits are ignored. This means that the real financial position of the business may be better than what has been shown by the financial statements. The use of accounting conventions makes financial statements simple, comparable, and realistic.

c)       Accounting Concepts: While preparing financial statements the accountants make a number of assumptions known as accounting concepts such as going concern concept, money measurement concept, realisation concept, etc. According to the going concern concept, it is assumed that the business of the concern shall be continued indefinitely. The assets are shown in the balance sheet at their book value rather than their market value.

d)      Legal implications: Financial statements are prepared following the legal obligations of the country. For example, while preparing the financial statement of an Indian company, the requirements as per the companies Act, 2013 and its amendments from time to time must be followed.

e)      Personal Judgement: Personal judgement also has an important bearing on financial statements. For example, selection of one method out of various methods of charging depreciation, inventory valuation etc., depends on the personal judgement of the accountant.


(b) Following are the Income Statements of a company for the years ending March 31, 2018 and 2019:


2018 (Rs. in ‘000)

2019 (Rs. in ‘000)


Miscellaneous Income









Cost of Sales

Office Expenses

Selling Expenses













Net Profit








Prepare a common-size income statement and interpret them. 7+7=14

4. (a) “Return on Investment is considered to be the master ratio which reflects the overall performance of the company.” Elucidate and show by examples how various managerial decisions affect Returns on Investment. (ROl). 14


(b) What relationship would you examine to study the following?         5+5+4=14

1) The Capital Structure.

2) The liquidity.

3) The earning power of a business unit.

5. (a) What should be the objectives of financial reporting by business enterprises? Distinguish between Financial Reporting and Financial Statement. 7+7=14

Ans: Objectives of Financial Reporting: The following points sum up the objectives & purposes of financial reporting:

a)       Providing information to management of an organization which is used for the purpose of planning, analysis, benchmarking and decision making.

b)      Providing information to investors, promoters, debt provider and creditors which is used to enable them to male rational and prudent decisions regarding investment, credit etc.

c)       Providing information to shareholders & public at large in case of listed companies about various aspects of an organization.

d)      Providing information about the economic resources of an organization, claims to those resources (liabilities & owner’s equity) and how these resources and claims have undergone change over a period of time.

e)      Providing information as to how an organization is procuring & using various resources.

f)        Providing information to various stakeholders regarding performance of management of an organization as to how diligently & ethically they are discharging their fiduciary duties & responsibilities.

g)       Providing information to the statutory auditors which in turn facilitates audit.

h)      Enhancing social welfare by looking into the interest of employees, trade union & Government.

Difference between Financial Reporting and Financial Statements

Meaning of Financial Reporting

Basically, financial reporting is the process of preparing, presenting and circulating the financial information in various forms to the users which helps in making vigilant planning and decision making by users. The core objective of financial reporting is to present financial information of the business entity which will help in decision making about the resources provided to the reporting entity and in assessing whether the management and the governing board of that entity have made efficient and effective use of the resources provided. Financial reporting is of two types – Internal reporting and external reporting. The financial report made to the management is generally known as internal reporting and the financial report made to the shareholders and creditors is generally known as external reporting. The internal reporting is a part of management information system and they use MIS reporting for the purpose of analysis and as an aid in decision making process.

Meaning of Financial Statements

Financial statements are the summarized statements of accounting data produced at the end of accounting process by an enterprise through which accounting information are communicated to the internal and external users.

The American Institute of Certified Public Accountants states the nature of financial statements as “Financial Statements are prepared for the purpose of presenting a periodical review of report on progress by the management and deal with the status of investment in the business and the results achieved during the period under review. They reflect a combination of recorded facts, accounting principles and personal judgments.”

In the words of Myer,” The financial statements provide a summary of accounts of a business enterprise, the balance sheet reflecting the assets, liabilities and capital as on a certain date and income statement showing the result of operations during a certain period”.

Difference between Financial Reporting and Financial Statements


Financial Reporting

Financial Statements


Financial reporting is the process of preparing, presenting and circulating the financial information in various forms to the users which helps in making vigilant planning and decision making by users.

Financial statements are the summarized statements of accounting data produced at the end of accounting process by an enterprise through which accounting information are communicated to the internal and external users.


The main objective of financial reporting is to present financial information of the business entity which will help in decision making.

The main objective of financial statements are to show operating efficiency and financial position.


Financial reporting is process of disclosure of financial results and related information to management and external stakeholders.

Financial analysis is the process of evaluating businesses, projects, budgets, and other finance-related transactions to determine their performance and suitability.


All financial reports are not a part of financial reporting.

All financial statements are part of financial reporting.


A Financial report is much longer than financial statements.

Financial statements are in summarised format.


There is not specific format of financial reports. It is prepared according to the need of the internal and external users.

Financial statements are prepared in a format prescribed under Schedule III of the Companies Act’ 2013.


(b) “Corporate Social Responsibility Reporting is often called the triple bottom line approach – sustainability in environment, social community and business.” Discuss. 14


A corporation practicing CSR strives to comply with the laws and regulations, make a profit, be ethical and provide social accountability. It is responsible for the wider impact on society and not just the return of investments to stakeholders alone. Changing business practices and internal operations is considered vital for those organizations practicing CSR. In 1998 John Eklington coined the term “Triple Bottom Line” which is a coincident approach to that of CSR and an integrated concept under the umbrella of Social Responsibility. The “Triple Bottom Line (TBL)” approach is a means for corporations to achieve the adequate level of Corporate Social Responsibility which is necessary in the age of sustainable development for future generations.

There is no single, universally accepted definition of TBL reporting. In its broadest sense, TBL reporting is defined as corporate communication with stakeholders that describes the company’s approach to managing one or more of the economic, environmental and / or social dimensions of its activities and through providing information on these dimensions. Consideration of these three dimensions of company management and performance is sometimes referred to as sustainability or sustainable development. In its purest sense, the concept of TBL reporting refers to the publication of economic, environmental and social information in an integrated manner that reflects activities and outcomes across these three dimensions of a company’s performance.

Also termed as the 3P approach- People, Planet, Profit, the TBL considers CSR as an investment rather than a method of achieving sustainability. It focuses on the three aspects of-

People: A triple bottom line organization takes steps to ensure that its operations benefit the company's employees as well as the community in which it conducts business. Human resources managers of TBL entities are concerned, not just with providing adequate compensation to its workers, but also with creating a safe and pleasant working environment and helping employees find value in their work.

Planet: A TBL company avoids any activities that harm the environment and looks for ways to reduce any negative impact its operations may have on the ecosystem. It controls its energy consumption and takes steps to reduce its carbon emissions. Many TBL companies go beyond these basic measures by taking advantage of other means of sustainable development, such as using wind power. Many of these practices actually increase a company's profitability while contributing to the health of our planet.

Profit: The profit or economic bottom line deals with the economic value created by the organization after deducting the cost of all inputs, including the cost of the capital tied up. It therefore differs from traditional accounting definitions of profit. In the original concept, within a sustainability framework, the "profit" aspect needs to be seen as the real economic benefit enjoyed by the society. It is the real economic impact the organization has on its economic environment.


TBL reports usually contain both qualitative and quantitative information. In order for all reported information to be credible, it should possess the following characteristics: -

a)       Reliability: Information should be accurate, and provide a true reflection of the activities and performance of the company.

b)      Usefulness: The information must be relevant to both internal and external stakeholders, and be relevant to their decision-making processes.

c)       Consistency of presentation: Throughout the report there should be consistency of presentation of data and information. This includes consistency in aspects such as format, timeframes, graphics etc.

d)      Full disclosure: Reported information should provide an open explanation of specific actions undertaken and performance outcomes.

e)      Reproducible: Information is likely to be published on an ongoing basis, and companies must ensure that they have the capacity to reproduce data and information in future reporting periods.

f)        Audit ability: All statements and data within the report are able to be readily authenticated.

6. (a) Discuss the impact of IFRS on Indian Banking Companies. 14

Ans: A banking company is defined as a company which transacts the business of banking in India. Section 5 (b) of The Banking Regulation Act, 1949 defines the term banking as “accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise.

Section – 7 of this Act makes it essential for every company carrying on the business of banking in India to use as part of its name at least one of the words – bank, banker, banking or banking company. Section 49A of the Act prohibits any institution other than banking companies to accept deposit money from public withdraw able by cheque. The essence of banking business is the function of accepting deposits from public with the facility of withdrawal of money by cheque. In other words, the combination of the functions of acceptance of public deposits and withdrawal of the money by cheque by any institution cannot be performed without the approval of Reserve Bank.


There are various types of users of the financial statements of banks who need information about the financial position and performance of the banks. The financial statements are required to provide the information about the financial position and performance of the bank in making economic decisions by the users. The important information sought by these users are, about bank’s Liquidity and solvency and the risks related to the assets and liabilities recognized on its balance sheet and to its off balance sheet items. This useful information can be provided by way of ‘Notes’ to the financial statements, hence notes become an integral part of the financial statements of banks. The users can make use of these notes and supplementary information to arrive at a meaningful decision. Some of the specific disclosure requirements in Bank’s financial statement are given below:

a) Presentation: Summary of Significant Accounting Policies’ and ‘Notes to Accounts’ may be shown under Schedule 17 and Schedule 18 respectively, to maintain uniformity.

b) Minimum Disclosures: While complying with the requirements of Minimum disclosures, banks should ensure to furnish all the required information in ‘Notes to Accounts’. In addition to the minimum disclosures, banks are also encouraged to make more comprehensive disclosures to assist in understanding of the financial position and performance of the bank.

c) Summary of Significant Accounting Policies: Banks should disclose the accounting policies regarding key areas of operations at one place (under Schedule 17) along with Notes to Accounts in their financial statements. The list includes – Basis of Accounting, Transactions involving Foreign Exchange, Investments – Classification, Valuation etc, Advances and Provisions thereon, Fixed Assets and Depreciation, Revenue Recognition, Employee Benefits, Provision for Taxation, Net Profit, etc.

d) Disclosure Requirements: In order to encourage market discipline, Reserve Bank has over the years developed a set of disclosure requirements which allow the market participants to assess key pieces of information on capital adequacy, risk exposures, risk assessment processes and key business parameters which provide a consistent and understandable disclosure framework that enhances comparability. Banks are also required to comply with the Accounting Standard 1 (AS 1) on Disclosure of Accounting Policies issued by the Institute of Chartered Accountants of India (ICAI). The enhanced disclosures have been achieved through revision of Balance Sheet and Profit & Loss Account of banks and enlarging the scope of disclosures to be made in “Notes to Accounts”.

e) Additional/Supplementary Information: In addition to the 16 detailed prescribed schedules to the balance sheet, banks are required to furnish the following information in the “Notes to Accounts”. Such furnished (information should cover the current year and the previous year). “Notes to Accounts” may contain the supplementary information such as:

1.       Capital (Current & Previous Year) with breakup including CRAR – Tier I/II capital (%), % of shareholding of GOI, amount of subordinated debt raised as Tier II capital. Also it should show the total amount of subordinated debt through borrowings from Head Office for inclusion in Tier II capital etc.

2.       Investments: Total amount should be mentioned in crores, with the total amount of investments, showing the gross value and net value of investments in India and Abroad. The details should also cover the movement of provisions held towards depreciation on investments.

3.       Derivatives: Forward Rate Agreement/Interest Rates Swap: Important aspects of the disclosures would include the details relating to:

a.       The notional principal of swap agreements;

b.       Losses which would be incurred if counterparties failed to fulfill their obligations under the agreements;

c.       Collateral required by the bank upon entering into swaps;

d.       Nature and terms of the swaps including information on credit and market risk and the accounting policies adopted for recording the swaps etc.

4.       Exchange Traded Interest Rate Derivatives: As regards Exchange Traded Interest Rate Derivatives, details would include the notional principal amount undertaken:

a.       During the year (instrument-wise),

b.       Outstanding as on 31st March (instrument-wise),

c.       Outstanding and not “highly effective” (instrument-wise),

d.       Mark-to-market value of exchange traded interest rate derivatives outstanding and not “highly effective” (instrument-wise).

f) Qualitative Disclosure: Banks should discuss their risk management policies pertaining to derivatives with a specific reference to the extent to which derivatives are used, the associated risks and business purposes served. This also includes:

a.       The structure and organization for management of risk in derivatives trading,

b.       The scope and nature of risk measurement, risk reporting and risk monitoring systems,

c.       Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants, and accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation.

g) Quantitative Disclosures: Apart from qualitative disclosures, banks should also included the quantitative disclosures. The details are both Currency Derivatives and Interest rate derivatives.

h) Asset Quality: Banks’ performances are considered good based on the quality of assets held by banks. With the changing scenario and due to number of risks associated with banks like Credit, Market and Operational risks, banks are concentrating to ensure better quality assets are held by them. Hence, the disclosure needs to cover various aspects of asset quality consisting of:

a.       Non-Performing Assets, covering various details like Net NPAs, movement of NPAs (Gross)/(Net) and relevant details provisioning to different types of NPAs including Write off/write-back of excess provisions, etc., Details of Non-Performing financial assets purchased, sold, are also required to be furnished.

b.       Particulars of Accounts Restructured: The details under different types of assets such as (i) Standard advances (ii) Sub-standard advances restructured (iii) Doubtful advances restructured (iv) TOTAL with details number of borrowers, amount outstanding, sacrifice.

c.       Banks disclose the total amount outstanding in all the accounts/facilities of borrowers whose accounts have been restructured along with the restructured part or facility. This means even if only one of the facilities/accounts of a borrower has been restructured, the bank should also disclose the entire outstanding amount pertaining to all the facilities/accounts of that particular borrower.

d.       Details of financial assets sold to Securitization/Reconstruction Company for Assets Reconstruction.

e.       Provisions on Standard Assets: Provisions towards Standard Assets need not be netted from gross advances but shown separately as ‘Provisions against Standard Assets’, under ‘Other Liabilities and Provisions – Others’ in Schedule No. 5 of the balance sheet.

f.        Other Details: Business Ratios: (i) Interest Income as a percentage to Working Funds (ii) Non-interest income as a percentage to Working Funds (iii) Operating Profit as a percentage to Working Funds (iv) Return on Assets (v) Business (Deposits plus advances) per employee (vi) Profit per employee.

i) Assets Liability Management: As part of Assets Liability Management, the maturity pattern of certain items of assets and liabilities such as deposits, advances, investments, borrowings, foreign current assets, and foreign currency liabilities. Banks are required to disclose the information based on the maturity patterns covering daily, monthly and yearly basis.

j) Break up Exposures: Banks should also furnish details of exposures to certain sectors like Real Estate Sector.

Exposure to Capital Market: Capital Market exposure details should be disclosed for the current and previous year in crores. The details would include direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt and also loan raised against such securities. A bank must also disclose the risk associated with such investments. The risks are to be categorized as Insignificant, Low, Moderate, High, Very high, Restricted and Off-credit.

Apart from the above category of exposures, banks are required to disclose details relating to Single Borrower Limit (SGL)/Group Borrower Limit (GBL) exceeded by the bank, and Unsecured Advances are to be furnished. Miscellaneous items would include Amount of Provisions made for Income Tax during the year, and Disclosure of Penalties imposed by RBI, etc.


Audit: The balance sheet and the profit and loss account of a banking company have to be audited as stipulated under Section 30 of the Banking Regulation Act. Every banking company’s account needs to be verified and certified by the Statutory Auditors as per the provisions of legal frame work. The powers, functions and duties of the auditors and other terms and conditions as applicable to auditors under the provisions of the Companies Act are applicable to auditors of the banking companies as well. The audit of banking companies books of accounts calls for additional details and certificates to be provided by the auditors.

Apart from the balance sheet audit, Reserve Bank of India is empowered by the provisions of the Banking Regulation Act to conduct/order a special audit of the accounts of any banking company. The special audit may be conducted or ordered to be conducted, in the opinion of the Reserve Bank of India that the special audit is necessary;

a.       In the public interest and/or

b.       In the interest of the banking company and/or

c.       In the interest of the depositors.

The Reserve Bank of India’s directions can order the bank to appoint the same auditor or another auditor to conduct the special audit. The special audit report should be submitted to the Reserve Bank of India with a copy to the banking company. The cost of the audit is to be borne by the banking company.


(b) Discuss the important provisions need to be taken into consideration for financial reporting of insurance companies. 14

Ans: Financial Reporting Requirements of Insurance Companies in India

To protect the interests of policyholders and to increase transparency and credibility of insurance companies there is a need to have an effective regulatory system for financial reporting of insurance companies. Reporting requirements of insurance companies are different from that of other companies, because of the concept of policyholders and shareholders’ fund, segment reporting in respect of all the funds maintained by the company, complexity of insurance contracts and insurance itself is an intangible product.

Earlier the accounts of insurance companies were governed by Insurance Act 1938, but passing of Insurance Regulatory Development Authority Act (IRDA Act) in 1999 opened a new chapter for disclosure norms of insurance companies. In the year 2002, the IRDA came up with regulations for the preparation of the financial statements of insurance companies. According to the Insurance (Amendment) Act, 2002, the first, second and third schedules prescribed for balance sheet, profit and loss account and revenue account respectively as given in Insurance Act, 1938 have been omitted. Now revenue account, profit and loss account and balance sheet are to be prepared as per the formats prescribed by IRDA. However, the statutes governing financial reporting practices of insurance companies in India are: Insurance Act 1938, IRDA Act, 1999 (including IRDA Regulations), Companies Act and Institute of Chartered Accountants of India (ICAI).

IRDA Act 1999 (Including IRDA Regulations)

Insurance Regulatory Development Authority (IRDA) has prescribed various regulations from time to time. Preparation of Financial Statements and Auditor’s Report of Insurance Companies Regulations, 2002 are one of them. These regulations are related to the financial reporting practices of insurance companies. These regulations are important constituents of the Indian regulatory regime. According to the regulations made by the authority in consultation with the Insurance Advisory Committee, accounts of insurance companies are prepared according to the prescribed formats given by the authority. Details are given as under:

a) Preparation of Financial Statements: After the commencement of Insurance Regulatory Development Authority, Regulations, 2002, all the life insurance companies shall comply with the requirements of Schedule A and general insurance companies with Schedule B of these regulations while preparing their financial statements. The auditor’s report on the financial statements of all insurance companies shall be in conformity with the requirements of Schedule C. IRDA given the list of items to be disclosed in the financial statements of insurance companies under Part II of Schedule A (for life insurance companies) and Schedule B (for general insurance companies) of the (Preparation of Financial Statements and auditor’s report of Insurance Companies) Regulations, 2002. According to these regulations, following disclosure will form part of financial statements of insurance companies:

1.       Every insurance company will disclose all significant accounting policies and accounting standards followed by them in the manner required under Accounting Standard I issued by the Institute of Chartered Accountants of India. (ICAI).

2.       All companies will separately disclose if there is any departure from the accounting policies with reasons for such departure.

3.       Disclosure of investments made in accordance with statutory requirements separately together with its amount, nature, security and any special rights in and outside India.

4.       Disclosure of performing and non-performing investments separately.

5.       Disclosure of assets to the extent required to be deposited under local laws for otherwise encumbered in or outside India.

6.       All the companies are required to show sector-wise percentage of their business.

7.       To include a summary of financial statements for the last five years in their annual report to be prepared as prescribed by the IRDA.

8.       Disclose the basis of allocation of investments and income thereon between policyholders’ account and shareholders’ account.

9.       To disclose accounting ratios as prescribed by the Insurance Regulatory and Development Authority.

Disclosure of following items is made by way of notes to balance sheet:

1.       Contingent Liabilities.

2.       Actuarial assumptions for valuation of liabilities for life policies in force.

3.       Encumbrance’s to assets of the company in and outside India.

4.       Commitments made and outstanding for loans, investments and fixed assets.

5.       Basis of amortization of debt securities.

6.       Claims settled and remaining unpaid for a period of more than six months as on the balance sheet date.

7.       Value of contracts in relation to investments, for purchases where deliveries are pending and sales where payments are overdue.

8.       Operating expenses relating to insurance business and basis of allocation of expenditure to various segments of business.

9.       Computation of managerial remuneration.

10.   Historical costs of those investments valued on fair value basis.

11.   Basis of revaluation of investment property.

b) Management Report: According to the IRDA Regulations 2002, all the insurance companies are required to attach a management report to their financial statements. The contents of the management report are given under PART IV (Schedule A and Schedule B) of these regulations and reproduced below:

1.       Confirmation regarding the continued validity of the registration granted by the IRDA.

2.       Certification that all the dues payable to the statutory authorities has been duly paid.

3.       Confirmation to the effect that the shareholding patterns and the transfer of shares during the year are in accordance with the statutory or regulatory requirements.

4.       Declaration that the management has not directly or indirectly invested outside India the funds of the policyholders.

5.       Confirmation regarding required solvency margins.

6.       Certification to the effect that no part of the life insurance fund has been directly or indirectly applied in contravention of the provisions of the Insurance Act, 1938 (4 of 1938) relating to the application and investment of the life insurance funds.

7.       Disclosure with regard to the overall risk exposure and strategy adopted to mitigate the same.

8.       Operations in other countries, if any, with a separate statement giving the management’s estimate of country risk and exposure risk and the hedging strategy adopted.

9.       Ageing of claims indicating the trends in average claim settlement time during the preceding five years.

10.   Certification to the effect as to how the values, as shown in the balance sheet, of the investments and stocks and shares have been arrived at, and how the market value thereof has been ascertained for the purpose of comparison with the values so shown.

11.   Review of assets quality and performance of investment in terms of portfolio, i.e. separately in terms of real estate, loans, investments. Etc.

12.   A schedule payments, which have been made to individuals, firms, companies and organizations in which directors of the insurance company are interested.

13) A responsibility statement indicating therein that:

Ø  In the preparation of financial statements, the applicable amounting standards, principles and policies have been followed along with proper explanations relating to material departures, if any;

Ø  The management has adopted accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the operating profit or loss and of the profit or loss of the company for the year;

Ø  The management has taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the applicable provisions of the Insurance Act, 1938 and Companies Act 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;

Ø  The management has prepared the financial statements on a going concern basis;

Ø  The management has ensured that an internal audit system commensurate with the size and nature of the business exists and is operating effectively.

(Old Course)

Full Marks: 80

Pass Marks: 32

1. (a) State whether the following statements are True or False: 1x5=5

1) The term ‘Financial Analysis’ includes both ‘analysis’ and ‘interpretation’.               True

2) Net worth includes working capital.          False

3) High stock velocity indicates efficient management of inventory.                                True

4) OCED stands for Organization for Economic Cooperation and Development.          True

5) Liquidity of companies improves with increase in cash purchases.  False, Cash Sales

(b) Fill in the blanks with appropriate words:        1x3=3

1) IFRS-10 is associated with _______. (financial instruments / consolidated financial statement / fair value management)

2) Section _______ deals with the definition of banking business. [6(i) / 5(i)(b) / 7]

3) Inventory is part of _______. (current liabilities / fixed assets / liquid assets)

2. Write short notes on any four of the following: 4x4=16

(a) Economic Value Added Statement.

(b) Global Reporting Initiative (GRI).

(c) Financial Accounting Standards Board (FASB).

(d) Statutory Liquidity Ratio (SLR).

(e) IRDA.

(f) Segment Reporting.

3. (a) “Analysis without interpretation is meaningless and interpretation without analysis is impossible.” Discuss.                   11


(b) State the different types of financial analysis. Write the limitations of analysis and interpretation of financial statement.  6+5=11

4. (a) What are the important profitability ratios? How are they worked out?                        4+8=12


(b) (1) Discuss the significance of ratio analysis.                  6

(2) The following are the information collected from the final accounts of a firm:



Total Purchases

Cash Purchases

Purchases Returns

Creditors at the end

Bills Payable at the end






You are required to calculate the following:         3+3=6

1) Creditors turnover ratio.

2) Average payment period.

5. (a) What is triple bottom line (TBL) reporting? Discuss its characteristics and benefits. 4+3+4=11


(b) (1) “Financial reporting is a mandatory requirement in the annual report of a company.” Discuss.                         6

(2) Discuss the major qualitative characteristics of financial reporting.                                      5

6. (a) Discuss the purposes underlying the issue of accounting standard. How the Global Accounting Standard (IFRS) affected Indian GAAP?  7+4=11


(b) Discuss briefly the various International Financial Reporting Standards (IFRS) formulated by IASB.         11

7. (a) Define Banking Company. Mention the essential features of Banking Company. Write the important provisions of Banking Regulation Act, 1949.    3+3+5=11


(b) Discuss the important provisions need to be taken into consideration for financial reporting of NBFCs.


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