1 Groups and consolidation: an overview

 
2
An adjustment is made to reduce the sales and cost of sales figures by the value of intra-group sales 
during the year. Thus the consolidated figures for sales and cost of sales should represent sales to and 
purchases from outsiders. 
3
D 
Revenue is reduced by the full amount of intra-group sales. 
4
B 
Gross profit is reduced by the element of unrealised profit which is 10,000 

25/125 = $2,000. 
5
Intra-group sales and purchases are 
eliminated
from the consolidated statement of profit or loss. 
Now try ... 
Attempt the questions below from the 
Practice Question Bank 
Qs 94 – 97
ANSWERS TO QUICK QUIZ 
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455 
Interpretation of financial
statements
part
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PART H: INTERPRETATION OF FINANCIAL STATEMENTS 
 
456
 
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457 
C H A P T E R 
TOPIC LIST 
SYLLABUS 
REFERENCE 
1 Information required by users 
H1(a),(b)
2 The broad categories of ratios
H2(a),(b), H3(a),(b)
3 Profitability 
and 
return 
H2(a),(b), H3(a),(b)
4 Liquidity, gearing/leverage and working capital 
H2(a),(b), H3(a),(b)
5 Interpreting 
information 
H3(a),(b)
6 Limitations of ratio analysis 
H3(a),(b)
Interpretation of 
financial statements
If you were to look at a statement of financial position or statement 
of profit or loss, how would you decide whether the company was 
doing well or badly? Or whether it was financially strong or 
financially vulnerable? And what would you be looking at in the 
figures to help you to make your judgement? 
The FFA/FA syllabus requires you to understand the importance 
and purpose of the interpretation and analysis of financial 
statements. It also requires you to be able to analyse financial 
statements, calculate key accounting ratios and draw conclusions 
about the information you are provided with.
Ratio analysis involves