Question

7. EXPLAIN THE USEFULNESS OF FINANCIAL STATEMENTS FOR FINANCIAL DECISION MAKING IN PARTICULAR BOOK VALUES. 8. CASH FLOW STATEMENT REQUIRES AS MINIMUM INFORMATION THE BEGINNING AND ENDING BALANCE SHEETS AND AN INCOME STATEMENT FOR THE PERTIOD WHICH REFEREED TO AS NET CASH FLOW FORMAT. WHAT ARE THE STEPS IN PREPARING CASHFLOW STATEMENT USING THI SAID FORMAT. 9. IF YOU WERE TO DEPOSIT IN A SPECIAL SAVINGS ACOOUNT P2,000.00 OF YOUR 13TH MONTH PAY EVERY YEAR, HOW MUCH WOULD YOUR ACCOUNT BE AT THE END OF FIVE YEARS IF BANK PAYS SIX PERCENT INTEREST COMPOUNDED ANNUALLY? 10. CONSIDER A COMPANY WITH A TOTAL SALES REQUIREMENT OF 3,000 PIECES FOR THE NEXT THREE MONTHS, AN ORDERING COST OF P1,000.00 PER ORDER, AND A CARRYING COST OF P1.00 PER UNIT/ MONTH OR P3.00 FOR 3 MONTHS. WHAT IS THE ECONOMIC ORDER QUATITYY. INTERPRET THE RESULTS.

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Answer 1

Usefulness Of Financial Statements In Business Decision Making

1. Formulate Plans & Policies

The management of the company is time and again required to take several decisions with regards to formulating plans and policies for the future. Hence to take such decision they need to evaluate the past performance of the company. Financial statements in such cases provide the decision makers with a clear picture of the required period of time, helping them take necessary decisions regarding the plan and policies.

2. Holding Of Share

Shareholders being the owners of the company need to time and again take decision whether they want to continue with the holdings of the company’s share or sell them out. The annual financial statement provides the shareholders with meaningful information to take such decisions.

3. Expansion Of Credit

The creditors or the lenders are the providers of loan capital to the company. They use the entire set of information provided in the financial statements to determine whether they should or restrict the extent of credit to a business. They also decided the interest rates of the loans give to the company based on the financial statements.

4. Investment Decision

Prospective investors who have surplus capital to invest in profitable opportunities look for financial information of the company they are looking to invest in. To decide whether or not to invest their capital in the company’s share, the financial statement play an important role in providing useful information for their investment decision making purpose.

5. Taxation Decisions

Financial statements help the decision makes to make taxation decisions. By giving vital information based on the assets or income, the decision makers can derive the information from the financials. They can take decision to save taxes based on these financial statements.

The financial statements play a number of different roles. And each and every role depends largely upon who is reading the information and which financial statements are being examined. Hence the role of financial statements in business decision making is vital.

ECONOMIC ORDER QUANTITY

=SQUARE ROOT OF{ 2*3,000*4 months*1000}/{1/2}=6929 units (rounded off)