BBA Semester IV
Question 1- Which stakeholders require financial reports and why? Answer 1-
Accounting reports are designed to meet the common information needs of most decision makers. These decisions include when to buy, hold or sell the company shares. It assess the ability of the company to pay its employees, determine profits to be distributed. 1. Investors: Broadly classifieds as retail investors, high net worth individuals, Institutional investors. As a chief provider of risk capital, investors are keen to know the return from their investments and risk associated 2. Lenders: Banks, financial institutions and debenture holders are the main lenders and they need information about the financial stability of the borrower enterprise. They use the information to monitor the economic stability of the company and to determine the capability of the company to repay the loans 3. Regulators, Rating agencies and Security Analyst: For seeking the information in assessing the prospective returns 4. Management: Needs the information to review the short term and long term solvency. To ensure the effective utilization of the resources, profitability and turnovers and investment. 5. Employees, trade unions and tax authorities: To get the information for company health, to decide the pay wage scale, declaration of bonus and other benefits. Tax authorities need information to assess the liability of the firm. 6. Customers: need information about the accounting details about the continuation of company especially when they have established a long term involvement 7. Government and regulatory agencies: Need information to regulate the activities of the company and when the tax laws needs to be amended 8. The public: Every company has the social responsibility and the public need information for their money held in.
Purpose of the financial reports to the above stakeholders is as under: * To monitor their investments and to evaluate the performance of management * To decide whether or not to invest
* To make buy/sell/hold recommendations to the clients by the brokers * To assign credit ratings
* To evaluate the financial strength and staying power of the company * Labour unions to gauge the wage and how much pay should be increased in future * Board of directors to review management performance
* Management to assess risks
* Competitors to benchmark their own results
* Potential competitors to know the risk involved before they enter * Actual or potential joint venture partners to know about the company and its financial situation
Question 2- Write a brief note on the ‘investment’ details required in the B/S. Answer 2-
Balance sheet shows the sources from which funds currently used to operate the business has been obtained and the types of property and rights, in which currently the funds are locked up. A company may invest a portion of its funds in such assets, which are not directly identified with its primary activities. Such assets are referred to as investments.
Schedule VI of Companies Act, 1956 requires the following information to be disclosed in respect of investments. 1. Investments in Government or Trust Securities
2. Investment in Shares, debenture or bonds in subsidiary and other companies 3. Immovable properties
4. Investments in partnership firms
5. Balance of unutilized monies raised by issue
6. Aggregate amount of quoted and unquoted investments together with market value 7. Mode of valuation of investments should also be disclosed i.e. cost or market value
Statement of investments classifying Trade investments and other investments containing details about the bodies corporate in whose shares or debentures investment has been made and the nature and extent thereof should be annexed to the balance sheet.
Trade Investments: Investments should be shown company wise, number of shares held, nominal value of...
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