Chapter analysis-of-financial-statements: Analysis of Financial Statements Assertion-Reason Questions | accountancy Class 12 CBSE

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 1

Logic Check

Assertion (A): Financial Statement Analysis is a judgemental process. Reason (R): It aims to estimate current and past financial positions to determine best possible estimates and predictions about future conditions.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 2

Logic Check

Assertion (A): Comparative Statements are also known as vertical analysis. Reason (R): They compare financial data across different time periods, moving horizontally from one year to another.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 3

Logic Check

Assertion (A): Common Size Statements are useful for inter-firm comparison of companies of different sizes. Reason (R): Common Size Statements express all items as percentages of a common base, bringing data to a comparable level regardless of absolute size.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 4

Logic Check

Assertion (A): Analysis without interpretation is useless. Reason (R): Interpretation means explaining the meaning and significance of the data, which gives purpose and utility to the classified financial data.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 5

Logic Check

Assertion (A): Trade payables are primarily interested in the long-term solvency of the firm. Reason (R): Trade payables need to evaluate the firm's ability to meet their claims over a very short period of time, focusing on liquidity.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 6

Logic Check

Assertion (A): Financial analysis considers both monetary and non-monetary aspects of a business. Reason (R): Financial statements are prepared on monetary terms and only monetary information is captured in the accounts.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 7

Logic Check

Assertion (A): Ratio analysis can be used to assess the profitability, solvency and efficiency of an enterprise. Reason (R): Ratio analysis describes the significant relationship between various items of a balance sheet and statement of profit and loss.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 8

Logic Check

Assertion (A): Trend analysis is important because it may point to basic changes in the nature of the business. Reason (R): Trend analysis has a long-run view, studying operational results and financial position over a series of years.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 9

Logic Check

Assertion (A): Financial analysis is useful only to the finance manager of a company. Reason (R): Financial analysis has broad scope and is significant to owners, creditors, lenders, investors, labour unions, and government agencies as well.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 10

Logic Check

Assertion (A): Comparative statements can be prepared even when different accounting principles are used in different years without any special notation. Reason (R): The financial data will be comparative only when the same accounting principles are used; deviations must be mentioned as footnotes.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 11

Logic Check

Assertion (A): Cash flow analysis summarises the causes for changes in cash position between two balance sheet dates. Reason (R): Cash flow analysis tracks the actual movement of cash into and out of an organisation during an accounting year.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 12

Logic Check

Assertion (A): Financial analysis does not reflect the current position of a firm. Reason (R): Financial statements are prepared on the basis of accounting concepts including historical cost, which do not reflect current market values.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 13

Logic Check

Assertion (A): In a comparative statement of profit and loss, if expenses in year 2 are lower than year 1, the absolute change is shown as a negative figure. Reason (R): Absolute change = Year 2 figure – Year 1 figure; a decrease results in a negative value.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 14

Logic Check

Assertion (A): Common size statement analysis is also known as component percentage statement analysis. Reason (R): Each item in the statement is expressed as a percentage of a common base, showing the component proportion of each element.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 15

Logic Check

Assertion (A): Investors in a company are primarily interested in the firm's short-term liquidity position. Reason (R): Investors concentrate on the analysis of the firm's present and future profitability and capital structure to assess earnings and risk.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 16

Logic Check

Assertion (A): A finance manager uses financial analysis to make constant reviews of actual financial operations and analyse causes of major deviations. Reason (R): Financial analysis is important in the area of financial control.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 17

Logic Check

Assertion (A): Trend analysis is useful for only two years of data. Reason (R): Trend analysis studies operational results and financial position over a series of years to observe percentage changes over time.

Reasoning Options

ByteNotes

Assertion-Reason

Easy difficulty • Check the statement and reason

Easy

Question 18

Logic Check

Assertion (A): Common size balance sheet helps compare two companies of different sizes in the same industry. Reason (R): By expressing items as percentages of total assets, it allows comparison of the operating and financing characteristics of companies regardless of their absolute size.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 19

Logic Check

Assertion (A): Financial analysis may be misleading without knowledge of changes in accounting procedures followed by a firm. Reason (R): A change in accounting policy (e.g., depreciation method) can alter reported profits, making year-on-year comparison invalid without disclosure.

Reasoning Options

ByteNotes

Assertion-Reason

Medium difficulty • Check the statement and reason

Medium

Question 20

Logic Check

Assertion (A): Long-term lenders analyse historical financial statements to assess future solvency and profitability of a firm. Reason (R): Long-term lenders are primarily concerned with short-term liquidity and current ratio of the firm.

Reasoning Options

ByteNotes

Chapter sections

Chapter analysis-of-financial-statements: Analysis of Financial Statements | Assertion-Reason

Assertion (A): Financial Statement Analysis is a judgemental process. Reason (R): It aims to estimate current and past financial positions to determine best possible estimates and predictions about future conditions.

Assertion (A): Comparative Statements are also known as vertical analysis. Reason (R): They compare financial data across different time periods, moving horizontally from one year to another.

Assertion (A): Common Size Statements are useful for inter-firm comparison of companies of different sizes. Reason (R): Common Size Statements express all items as percentages of a common base, bringing data to a comparable level regardless of absolute size.

Assertion (A): Analysis without interpretation is useless. Reason (R): Interpretation means explaining the meaning and significance of the data, which gives purpose and utility to the classified financial data.

Assertion (A): Trade payables are primarily interested in the long-term solvency of the firm. Reason (R): Trade payables need to evaluate the firm's ability to meet their claims over a very short period of time, focusing on liquidity.

Assertion (A): Financial analysis considers both monetary and non-monetary aspects of a business. Reason (R): Financial statements are prepared on monetary terms and only monetary information is captured in the accounts.

Assertion (A): Ratio analysis can be used to assess the profitability, solvency and efficiency of an enterprise. Reason (R): Ratio analysis describes the significant relationship between various items of a balance sheet and statement of profit and loss.

Assertion (A): Trend analysis is important because it may point to basic changes in the nature of the business. Reason (R): Trend analysis has a long-run view, studying operational results and financial position over a series of years.

Assertion (A): Financial analysis is useful only to the finance manager of a company. Reason (R): Financial analysis has broad scope and is significant to owners, creditors, lenders, investors, labour unions, and government agencies as well.

Assertion (A): Comparative statements can be prepared even when different accounting principles are used in different years without any special notation. Reason (R): The financial data will be comparative only when the same accounting principles are used; deviations must be mentioned as footnotes.

Assertion (A): Cash flow analysis summarises the causes for changes in cash position between two balance sheet dates. Reason (R): Cash flow analysis tracks the actual movement of cash into and out of an organisation during an accounting year.

Assertion (A): Financial analysis does not reflect the current position of a firm. Reason (R): Financial statements are prepared on the basis of accounting concepts including historical cost, which do not reflect current market values.

Assertion (A): In a comparative statement of profit and loss, if expenses in year 2 are lower than year 1, the absolute change is shown as a negative figure. Reason (R): Absolute change = Year 2 figure – Year 1 figure; a decrease results in a negative value.

Assertion (A): Common size statement analysis is also known as component percentage statement analysis. Reason (R): Each item in the statement is expressed as a percentage of a common base, showing the component proportion of each element.

Assertion (A): Investors in a company are primarily interested in the firm's short-term liquidity position. Reason (R): Investors concentrate on the analysis of the firm's present and future profitability and capital structure to assess earnings and risk.

Assertion (A): A finance manager uses financial analysis to make constant reviews of actual financial operations and analyse causes of major deviations. Reason (R): Financial analysis is important in the area of financial control.

Assertion (A): Trend analysis is useful for only two years of data. Reason (R): Trend analysis studies operational results and financial position over a series of years to observe percentage changes over time.

Assertion (A): Common size balance sheet helps compare two companies of different sizes in the same industry. Reason (R): By expressing items as percentages of total assets, it allows comparison of the operating and financing characteristics of companies regardless of their absolute size.

Assertion (A): Financial analysis may be misleading without knowledge of changes in accounting procedures followed by a firm. Reason (R): A change in accounting policy (e.g., depreciation method) can alter reported profits, making year-on-year comparison invalid without disclosure.

Assertion (A): Long-term lenders analyse historical financial statements to assess future solvency and profitability of a firm. Reason (R): Long-term lenders are primarily concerned with short-term liquidity and current ratio of the firm.

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