Hbc2105:Financial Statement Analysis Question Paper
Hbc2105:Financial Statement Analysis
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2012
QUESTION ONE (30 MARKS)
a) Identify the various users of financial statements and state their needs. (12 Marks) b) Explain five limitations of ratio analysis as a technique for financial statement analysis. (10 Marks) c) Explain the objectives of financial statement analysis. (8 Marks)
QUESTION TWO (20 MARKS)
You have obtained the following data for Jacob Company Ltd for the year ended December 31, 2011 (some income statement items are missing.)
Sh. Cost of goods sold 485,000 General and administrative expenses. 80,000 Interest expense 8,500 Net income 12,000 Sales 790,000 Tax expense 8,000
Required:
a) The total gross profit (2 Marks) b) The operating income (2 Marks)
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c) The amount of other expenses ( in addition to general and administrative expense). (2 Marks) d) Gross profit percentage (2 Marks) e) Total assets if the return on assets is 4%. (3 Marks) f) g) Return on sales. (3 Marks) h) Tax income rate. (3 Marks)
QUESTION THREE (20 MARKS)
a) What is the difference between a statement of financial position and consolidated statement of financial position? (2 Marks) b) Explain the following terms as used in financial statement analysis; i. Vertical analysis. (1 Mark) ii. Horizontal analysis. (1 Mark) iii. Cross – section analysis. (1 Mark) iv. Ratio analysis. (1 Mark) v. Trend analysis. (1 Mark) c) The following data are taken from the comparative statement of financial position for Meru Company Ltd.
2011 2010 Sh Sh Cash 680,000 500,000 Accounts receivable 860,000 800,000 Inventories 1,360,000 600,000 Property, plant and equipment1,820,000 1,100,000 Total assets 4,720,000 3,000,000
Sales for 2011 were sh. 20 million. Sales in 2010 were sh.16 million. Required:
i. Prepare the asset section of a common size statement of financial position for Meru Company Ltd for 2011 and 2010. (10 Marks) ii. Overall, Meru is less efficient at using its assets to generate sales in 2011 than in 2010. What asset or assets are responsible for this decreased efficiency? (3 Marks)
QUESTION FOUR (20 MARKS)
a) Discuss the various costs of financial distress. (8 Marks) b) Explain the meaning of information asymmetry. (2 Marks)
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c) Explain the factors that can reduce comparability among financial statements. (4 Marks) d) What is the danger in focusing financial analysis solely on the data found in the historical financial statements? (2 Marks) e) An (4 Marks)
QUESTION FIVE (20 MARKS)
a) The following capital structure relates to Mikinduri Ltd. Sh.
Ordinary share capital 400,000 shares @ sh. 10 4,000,000
10% preference shares 1,800,000
12% Long term debt 1,200,000
For the year ended 31 December payment ratio is at 60%. Assuming a corporate tax rate of 30%.
Required:
i. Earnings attributable to ordinary shareholders. (4 Marks) ii. Retained earnings. (3 Marks) iii. Dividend per share. (3 Marks)
b) Discuss the market forces that are in operation within the reporting environment that (10 Marks)
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