Concept introduction:
Financial Statement analysis is done using the components of financial statement. These components are
Vertical Analysis: Vertical Analysis is used to analyses the % of items in statement for a particular period as the % of total amount. Vertical Analysis is done for particular period for different items. For example analysis of % of assets as % of Total assets for a particular year is done using the Vertical analysis.
Horizontal Analysis: Horizontal Analysis is used to analyses the trend of a particular item. Horizontal Analysis is done for particular items for different periods for example analysis of trend of sales for several years is done using the horizontal analysis.
Requirement 1:
To indicate:
The limitation to using ratio analysis comparing accounts as per IFRS and GAAP.
Concept introduction:
Financial Statement analysis is done using the components of financial statement. These components are Balance sheet, Income statement, Statement of Cash flows etc. Annual report of a company contains financial statement of that year and previous year for comparison. If the company has subsidiaries or segments, the financial statement shall be consolidated for whole business of the company.
Vertical Analysis: Vertical Analysis is used to analyses the % of items in statement for a particular period as the % of total amount. Vertical Analysis is done for particular period for different items. For example analysis of % of assets as % of Total assets for a particular year is done using the Vertical analysis.
Horizontal Analysis: Horizontal Analysis is used to analyses the trend of a particular item. Horizontal Analysis is done for particular items for different periods for example analysis of trend of sales for several years is done using the horizontal analysis.
Requirement 2:
To indicate:
The advantages of horizontal and vertical analysis in analyzing the financial statements with different currencies.
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Chapter 13 Solutions
Managerial Accounting
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