Some of the limitations of the ratio analysis are:- 1. Differences in Definitions 2. Limitations of Accounting Records 3. Lack of Proper Standards 4. No Allowances for Price Level Changes 5. Changes in Accounting Procedure 6. Qualitative Factors are Ignored 7. Limited Use of Single Ratio 8. Background is Overlooked 9. Limited Use 10. Personal Bias 11. Arithmetical Window Dressing [...]
Here is a compilation of top thirteen accounting problems on ratio analysis with its relevant solutions. Problem 1: The following is the Balance Sheet of a company as on 31st March: Problem 2: From the following particulars found in the Trading, Profit and Loss Account of A Company Ltd., work out the operation ratio of the business concern: Problem 3: [...]
The importance of ratio analysis are:- 1. Aid to Measure General Efficiency 2. Aid to Measure Financial Solvency 4. Facilitate Decision-Making 5. Aid in Corrective Action 6. Aid in Intra Firm Comparison 7. Act as a Good Communication 8. Evaluation of Efficiency 9. Effective Tool 10. Detection of Unfavourable Factors. 1. Aid to Measure General Efficiency: Ratios enable the mass [...]