SAVITRIBAI PHULE PUNE

UNIVERSITY

PRAGNYA COLLEGE OF
MANAGEMENT AND COMPUTER
STUDIES

T.Y B.B. A (SEM-V)

(Academic year 2020-2021)

B.B.A. (BACHELOR IN BUSINESS

ADMINISTRATION) F.Y.(SEMESTER-)
NAME - SARTHAK MANGESH SOMANI
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Legal Aspects
of Financial
Statement &
Security
Laws…

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 PRAGNYA
GROUP OF INSTITUTES

Pragnya Educational Trust’s

PRAGNYA COLLEGE OF MANAGEMENT AND COMPUTER STUDIES

HANDEWADI ROAD, PUNE- 412308

CERTIFICATE

This is certified that SARTHAK MANGESH SOMANI student of

“PRAGNYA COLLEGE OF MGMT & CS”, Pune has completed
her field work report on the topic of “FINANCIAL
STATEMENT” and has submitted the project report in partial
fulfilment of BBA to the college for the academic year 2020-
2021.
He has worked under the guidance and direction. The said
report is based on bona fide information.

Prof. Asha Yadwarkar Prof. Fazilat Jagot

Principal Project guide

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 ACKNOWLEDGEMENT

It is a pleasure to thanks all the people who directly or indirectly

in
many ways to have assisted me in my project related studies
and
contributed in making this project. Firstly, I would like to thank
my
project mentor Prof. Fazilat Jagot for her support, cooperation
and
fruitful discussion during my research on the topic “Financial
Statement and SEBI”
I would like to express my gratitude to Savitribai Phule
University of
Pune and my college for guiding and supporting me during my
project.

THANKING YOU,
SARTHAK SOMANI

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 DECLARATION

I, the undersigned, hereby declare that the Project Report

Entitled “Financial Statement and SEBI” written and submitted

by me to the University of Pune, in partial fulfillment of the
requirements for the award of degree of Bachelor of Business
Administration under the guidance of Prof. Fazilot Jagot. The
research and conclusions drawn therein are based on the
material collected by myself.

Place: Pune

Research Student: Sarthak Somani

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 Date: 24/12/202

INDEX

Financial statements Definition 7
Purpose for financial statements 5
Uses of financial statements 11
1. Importance of Financial Statements 12
IEPF Information 20
Questions and Answers-Financial 22
Statement

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Financial statements Definition:
Financial statements (or financial reports) are formal records of
the financial activities and position of a business, person, or
other entity.
Relevant financial information is presented in a structured
manner and in a form which is easy to understand. They
typically include four basic financial statements accompanied
by a management discussion and analysis:

1. A balance sheet or statement of financial position,

reports on a company's assets, liabilities,
and owners’ equity at a given point in time.
2. An income statement—or profit and loss report (P&L
report), or statement of comprehensive income,
or statement of revenue & expense—reports on a
company's income, expenses, and profits over a
stated period. A profit and loss statement provides
information on the operation of the enterprise. These
include sales and the various expenses incurred
during the stated period.
3. A statement of changes in equity or statement of
equity, or statement of retained earnings, reports on
the changes in equity of the company over a stated
period.
4. A cash flow statement reports on a company's cash
flow activities, particularly its
operating, investing and financing activities over a
stated period.
5. A comprehensive income statement involves those
other comprehensive income items which are not
included while determining net income.

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Purpose for financial statements:
"The objective of financial statements is to provide
information about the financial position, performance
and changes in financial position of an enterprise that is
useful to a wide range of users in making economic
decisions."[2] Financial statements should be
understandable, relevant, reliable and comparable.
Reported assets, liabilities, equity, income and
expenses are directly related to an organization's
financial position.

Financial statements are intended to be understandable

by readers who have "a reasonable knowledge of
business and economic activities and accounting and
who are willing to study the information diligently."[2]
Financial statements may be used by users for different
purposes:

Owners and managers require financial statements to

make important business decisions that affect its
continued operations. Financial analysis is then
performed on these statements to provide management
with a more detailed understanding of the figures. These
statements are also used as part of management's
annual report to the stockholders.
Employees also need these reports in making collective
bargaining agreements (CBA) with the management, in

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the case of labor unions or for individuals in discussing
their compensation, promotion and rankings.
Prospective investors make use of financial statements
to assess the viability of investing in a business.
Financial analyses are often used by investors and are
prepared by professionals (financial analysts), thus
providing them with the basis for making investment
decisions.
Financial institutions (banks and other lending
companies) use them to decide whether to grant a
company with fresh working capital or extend debt
securities (such as a long-term bank loan or debentures)
to finance expansion and other significant expenditures.

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Uses of financial statements:
1.Determine the financial position of the business: The
most important use of the financial statements is to
provide information about the financial position of the
business on a given date. This piece of information is
used by various stakeholders in order to take important
decisions regarding the business.
2.To obtain credit: Financial statements present the
picture of the business to the potential lenders and this
information can be used by them to provide additional
credit for business expansion or restrict the credit so as
to start recovery.
3.Helps investors in decision making: Financial
statements contain all the essential information required
by the potential investors for determining how much they
want to invest in the business. It is also helpful in
decision making regarding the price per share that the
investors want to invest. A sound financial statement is
the key to obtaining investments.
4.Helps in policy making: The financial statements help
the government in deciding the taxation and regulations
policies based on the way the company is running its
operations. The government bodies can tax a business
based on the level of their income and assets.

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5.Useful for stock traders: Financials statements help
stock traders with the knowledge of the situation the
company is in and therefore adjusting their quotes
accordingly.
Importance of Financial Statements:

Financial Statements are very important as it accurately reflects

business performance and financial position of the company.
Additionally, it helps all stakeholders including management,
investors, financial analyst etc to evaluate and take suitable
economic decisions by comparing past and current
performance and therefore predict future performance and
growth of the company.

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#1 Importance of the Balance Sheet

The balance sheet shows the financial position of the

company and provides detailed investments of the
company’s asset investments. The balance sheet also
contains the company’s debt and equity levels. This
capital mix helps investors and creditors understand the
position and the company’s performance

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There are differences in which various items are
reported in IFRS and US GAAP. For example, long-lived
assets, inventory, intangible assets , leases, impairment
of longed lived assets as well as taxes

#2 Importance of Income Statement

The balance sheet is a snapshot of the company’s

assets, liabilities, equity, and debt. It does not show
what actually happened in the period that caused the
company to get to the position where it is now.
Therefore, profit figures on the income statement are
important to the investors.
Income statement format contains sales, expenses,
losses, and profit. Using these statements can help
investors evaluate the companies past performance and
determine the future cash flows
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IFRS and US GAAP also have a difference in the
classification of certain expenses like restructuring
charges shipping costs, and handling costs

#3 Importance of Cash Flow Statement

Cash flow statement shows the inflow and the outflow of

the cash flow in and out of business during the financial
period. This gives the investors an idea if the company
has enough funds to pay for its expenses and
purchases.
The cash flow statement has all three main headings, i.e
Operating, Investing, and Financing. This gives the
business an overview of all the entire business
Under the US GAAP interest received and paid will be a
part of operating activities while under IFRS interest
received will be a part of operating or investing activities.
Interest paid will be a part of operating or financing
activities
Similarly, under US GAAP dividends received will be a
part of operating activities

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while dividends paid will be a part of financing activities
and under IFRS, dividends received will be a part of
operating activities while dividends paid will be a part of
the financing.

#4 Importance of the Statement of Equity

This is primarily important to the equity shareholders

because it shows the changes in the components like
retained earnings during the period
The difference between equity and debt shows the
company’s net worth
A company with a steady increase in retained earnings
is sustainable as opposed to increasing shareholder
base.

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#5 To the Management

The complexities and the size of the business make it

necessary for the management to have up to date,
accurate and detailed information of the business and
the financial position. The financial position helps the
management in understanding the performance of the
company in comparison to the other businesses and the
sector.

Providing management with accurate information

enables them to form proper policies for the companies
and take correct decisions

The performance of management is ranked by these

statements, the performance of these statements will
help management justify their work to all the parties
involved in the business

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#6 To the Shareholders

Shareholders are the owners of the business but do not

take part in making decisions and day to day activities.
However, these results are shared with the shareholders
at the AGM
held annually.

These statements enable the shareholders to

understand how the company has been performing. It
also allows them to judge the present and future
performance

Financial statements are the most important source of

information for current and prospective customers. They
also need it to understand the dividend playout ratio
and forecast the future dividends

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#7 To the Creditors and the Lenders
Factors like liquidity debt, profitability are all judged by
the essential metrics in the financial statements.
Creditors and Lenders are most concerned about the
company’s debt position. If the debt level is higher than
the other companies in the same industry, it means that
the company is over-leveraged

Analysing these statements will help them decide if they

want to continue and determine the future course of
action.

#8 To the Employees
There are companies that present a different financial
statement for its employees. Employees need business
information for mainly two reasons their current wage
and future salary appraisals. They will be interested in
knowing the current condition as well as the future
earnings

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#9 To the Government
This is another importance of the financial statements
that the government uses financial statements for
taxation purposes. The government uses the business
performance of these companies in various sectors to
assess the economy’s performance

IEPF Information:

To protect the interests of investors in securities and to

promote the development of, and to regulate the
securities market and for matters connected therewith or
incidental thereto, the central government (GOI) has
established a fund to be called Investor Education and
Protection Fund [IEPF]. The provisions of sub-Section
(5) (6) & (7) of section 125 of the Companies Act, 2013
are effective from 13th of January, 2016 vide MCA
Notification issued by Central Government.
Following amounts shall be part of IEPF, if they remain
unpaid for a period of seven years from the date of
declaration except point (6) and (7)

1. Amounts in the unpaid dividend accounts of

companies;
2. The application moneys received by companies for
allotment of any securities and due for refund;
3. Matured deposits with companies;

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4. Matured debentures with companies;
5. The interest accrued on the amounts referred to in
clauses (1) to (4);
6. Grants and donations given to the Fund by the
Central Government, State Governments,
companies or any other institutions for the purposes
of the Fund; and
7. The interest or other income received out of the
invest

tments made from the Fund.

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Questions and Answers-Financial
Statement:
Question-01: What are the financial statements?
Answer: Statements that summarize the financial condition and
performance of the business are called financial statements.

Question-02: How many types of financial statements are prepared

as per IAS?
Answer: Five (5) Types of financial statements are prepared as per
IAS.

Question-03: What are the five types of financial statements?

Answer: The five (5) types of financial statements are as follows:
 Income statement of comprehensive Income Statement.
 Owners’ Equity Statement.
 Financial Position Statement or Balance sheet.
 Cash Flow Statement.
 Notes, including a summary of the significant accounting
policies and other explanatory information provided in the
financial statement.

Question-04: What are the features of the financial statement?

Answer: The main features of the financial statements are as follows:
 This is the final report of the accounts.
 It is prepared at the end of a certain accounting period.
 Each financial statement publishes its own results.
 It is prepared following GAAP.
 Provides the necessary comments and explanations.

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Question-05: What is the objective or the need to prepare a financial
statement?
Answer: The objective or necessity of the preparation of the financial
statement is as follows:
 Preparation of the budget and business planning.
 Determination of the repayment power of the
organization’s current and long-term liabilities.
 Decision making by the creditors of the loan.
 Decision concerning the declaration of dividends.
 Aid for the determination of taxes.

Question-06: What are the limitations of the financial statement?

Answer: The limitations of the financial statement are as follows:
 Unable to reveal a true and fair financial position.
 Maintaining accounts on the basis of historical costs.
 Absence of quality information.
 Lack of information for the future.
 Failure to provide information promptly.

Question-07: Who are the internal users of the financial statements?

Answer:  The internal users of the financial statements are as follows:
 Owners
 Management Authority
 Internal Auditors

Question-08: Who are the external users of the Financial

Statements?
Answer: The external users of the Financial Statements are as
follows:
 Creditors
 Investors
 Government
 Tax Authority
 External Auditor
 Chamber of commerce & Industry
 Trade Union
 Research Workers
 Consulting Firm
Question-09: What is the Income or comprehensive Income
Statement?

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Answer: The statement in which revenue income and expenditures
are recorded is referred to as the income statement or the
comprehensive Income statement.

Question-10: What are the objectives of the Income Statement?

Answer: The objectives of the preparation of the income statement
are as follows:
 Determine the net profit or loss of the enterprise.
 Verify the effectiveness of the functions.
 Provide information on decision-making.
 Provide information on the analysis of the financial
situation.

Question-11: How many types of income statements are there and

what are they?
Answer: There are two types of income statements. They are as
follows:
 One-step Income Statement
 Multi-step or comprehensive income statement.

Question-12: What is a one-step Income statement?

Answer: An income statement in which the net profit or loss is
determined by subtracting the sum of expenses from the sum of all
incomes in one step is called a one-step income statement.

Question-13: What is a multi-step income statement?

Answer: An income statement that calculates net profit or loss step
by step is called a multi-step income statement.

Question-14: How to calculate gross profit in the comprehensive

Income Statement?
Answer: Gross profit= Net Sales-Cost of goods sold

Question-15: How to calculate Operating profit in the comprehensive

Income statement?
Answer: Operating Profit= Gross Profit-Operating Expenses

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Question-16: How to calculate Net profit in the comprehensive
Income statement?
Answer: Net Profit= Operating Profit + Others Income-Others
Expenses

Question-17: How to calculate Net Income in the comprehensive

Income statement for service-providing business?
Answer: Net Income=Total Incomes – Total Expenditures

Question-18: What is the Operating Income?

Answer: The income that is normally earned by running a business is
called operating income. E.g., Sales Revenue, Service Revenue.

Question-19: What is the non-operating Income?

Answer: Income earned from outside sources of business is called
non-operating income. E.g., Interest Income, Dividend.

Question-20: What is the operating expense?

Answer: The expenses incurred in running a business are called
operating expenses. E.g., administrative expenses, sales-related
expenses.

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