Interpretation of Accounts
Interpretation of Accounts 

Key Learning Outcomes
 Learn all the formulae required for part (a) and part (b) of this question.
 Learn the analysis points in part (b) of this question i.e. headings used and what is said under each heading.
 Know when to use %, cent, times, years, and :1 in part (a) and part (b) of this question.
 Learn all possible theory examinable in part (c) of this question.
 Know the maximum time for this question ‒ 45 minutes.
Introduction
Interpretation of Accounts has been examined each year as Question 5 in Section 2 of the Accounting examination paper as follows:
(1) Shareholders Analysis: 2002, 2003, 2004, 2005, 2007, 2008, 2009, 2012, 2013, 2015, 2016
(2) Debenture Holders Analysis: 2001, 2006, 2010
(3) Bank Manager’s Analysis: 2011, 2014
The years stated above are listed solely to assist revision ‒ See Practical Matters 4.
Two other topics are examined as Question 6 and Question 7 in Section 2 of the paper.
Each question in Section 2 is worth 100 marks (25% of the total marks).
In Question 5 the marks now awarded are: Part (a) 50m, Part (b) 40m, Part (c) 10m.
The choice in Section 2 is to answer any two questions from the three asked.
Practical Matters:
(1) Always do the solution in the same way ‒ this will increase speed and confidence.
(2) Use only one pen in the solution ‒ use of colour slows down the work.
(3) Write the solution on the left and right hand side of a double page.
(4) Do not try to predict the examination paper ‒ study all possible questions in this topic.
(5) Do not use lengthy descriptions in part (b).
Sample Exam Q&A
Question 
The following figures have been taken from the final accounts of Boyle plc, a company involved in the construction industry, for the year ended 31/12/2016. The company has an authorised capital of €900,000 made up of 700,000 ordinary shares at €1 each and 200,000 5% preference shares at €1 each. The company has already issued 500,000 ordinary shares and 100,000 of the preference shares.
(a) You are required to calculate the following for 2016: (where appropriate, calculations should be made to two decimal places.)
(b) Indicate if the Debenture Holders would be satisfied with the performance, state of affairs and prospects of the company. Use relevant ratios and other information to support your answer. (c) The gross profit percentage for 2015 was 21%

Sample Answers (a, b & c) 
A(i) Cash Sales: B
C(i) Gross Profit Percentage 2016:

Student Activity
Q1  In the earlier Boyle plc question, calculate the following (use 2 decimal places where appropriate):

Q2  In the earlier Boyle plc question, state an ordinary shareholder’s comment on:

Q3  If a company has poor results, what actions would you advise the company to take? 
Q4  State the reasons for a falling gross profit percentage. 
Q5  A rising liquidity ratio is a sign of prudent management. Briefly discuss. 
Q6  Explain the difference between the terms ‘Liquidity’ and ‘Solvency’ when used in Ratio Analysis. Refer to relevant ratios in your explanation. 
Q7 

Q8  State the limitations of ratio analysis as a financial analysis technique. 
Student Activity Answers
You can download/view the answers to the above questions here