Assertion Reason MCQs of Financial Statement Analysis Accountancy Class 12
Looking for important assertion reason MCQs of Financial statement Analysis of Accountancy class 12 CBSE, ISC, and State Board
We have compiled very important assertion reason multiple-choice questions of financial statement analysis of Accountancy class 12
Assertion Reason Multiple Choice Questions of Financial Statement Analysis of class 12 Accountancy
Let’s Practice
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Financial Statement Analysis is a systematic process of analyzing the financial data for its easy understanding and decision making
Reason (R): Financial statements are analyzed using analytical tools such as comparative statements, common-size statements, ratios, and cash flow statements.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True.
Ans – a)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Financial statement Analysis is undertaken by investors, lenders, and creditors for assessing the safety of the amount invested in the company.
Reason (R): Investors, lenders, and creditors undertake the analysis of the financial statements because they have invested their money in the company and have either indirect control or no control over the affairs of the company.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True.
Ans – a)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Comparative Statement is an analytical tool to compare individual items of the Balance Sheet and/or Statement of Profit and Loss of the company for two or more years.
Reason (R): Comparative Statement is prepared to compare individual items of Balance Sheet and/or statement of Profit and Loss and thus, the difference is ascertained both in amount and percent.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True.
Ans – a)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Common Size statement is a statement in which individual items of financial statements of two or more years are converted into a percent of a common base for comparison.
Reason (R): Common size Balance Sheet is prepared to place each item thereof and to convert them into percent of Total of Liabilities part or Assets Part.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True.
Ans – b)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Ratio analysis is an analytical tool for analyzing two inter-dependent components of the Balance Sheet.
Reason (R): Ratio analysis is an analytical tool for the analysis of two interdependent components of financial statements, i.e., Balance Sheet and/or Statement of Profit and Loss. For example, the return on Investment Ratio is computed to determine Return on Capital Employed. Capital employed is known from the Balance Sheet while Profit before interest and tax is known from the statement of Profit and Loss.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True.
Ans – d)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Cash Flow statement is an analytical tool to determine the inflow and outflow of Cash and Cash Equivalents during a financial year under appropriate heads.
Reason (R): Cash Flow Statement is prepared to show inflow and outflow under operating activities, investing activities, and financing activities. Thus, it shows the sources and uses of funds under these heads.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Assertion (A) is False but Reason (R) is True.
Ans – a)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Comparative Statement is a vertical analysis while a common size statement is a horizontal analysis.
Reason (R): Comparative Statement is a vertical analysis because an item of two years is compared. A common size statement is a horizontal analysis because an item of the financial statement is converted into a percent of the common base of the same year.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Both Assertion (A) and Reason (R) are False.
Ans – d)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Intra firm comparison means comparing the financial data of the same firm while inter-firm comparison means comparing financial data of two or more firms or industry standards.
Reason (R): Intra firm comparison is of financial variables taken from two independent financial statements of two firms or entities while Inter-firm comparison is that of financial data of two or more years of the same firm.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Both Assertion (A) and Reason (R) are False.
Ans – c)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): The process of financial statement analysis involves re-arranging the financial information, comparison of financial data, application of analytical tools, and interpreting the data of financial analysis.
Reason (R): Financial statement analysis is carried out using the analytical tools, i.e., comparative and common-size statements, Ratio Analysis, and Cash Flow Statement.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Both Assertion (A) and Reason (R) are False.
Ans – a)
Ans – a)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): The objective of financial statement analysis is to assess profitability, managerial efficiency, solvency, inter-firm comparison, forecasting, and making the information easily understandable.
Reason (R): Financial statement analysis is carried out using Ratio Analysis to assess profitability, solvency, and understandability, comparative and common size statements to compare and understandability while cash flow statement to forecast the flow of cash and cash equivalents and understandability.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Both Assertion (A) and Reason (R) are False.
Ans – a)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Analysis of financial statements suffer from the limitation of ignoring price level changes.
Reason (R): Transactions are recorded at the value transacted on the date they are entered. The value of currency keeps changing and therefore, financial statements do not give the current position and as a result, analysis of financial statements take the value to be static.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Both Assertion (A) and Reason (R) are False.
Ans – a)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Analysis of financial statements ignores the qualitative aspect of the enterprise.
Reason (R): Financial statements are concerned with transactions with monetary value and based on evidence, the Quality aspect can not be measured in money terms and therefore are not recorded in the books. As a result, analysis of financial statements also has this limitation.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Both Assertion (A) and Reason (R) are False.
Ans – a)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Analysis of financial statements using an inter-firm comparison is meaningful even if the companies follow different accounting policies.
Reason (R): Financial statements prepared on the basis of different accounting policies are comparable in spite of the financial information being not on the same basis.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Both Assertion (A) and Reason (R) are False.
Ans – d)
Read the following statements: Assertion and Reason. Choose one of the correct alternatives given below:
Assertion (A): Analysis of financial statements suffers from the limitation of not being free from personal bias.
Reason (R): Preparation of financial statements involves personal bias (e.g., choosing depreciation method) and therefore analysis of financial statements also has this limitation.
Alternatives:
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of Assertion (A).
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
c) Assertion (A) is true but Reason (R) is False
d) Both Assertion (A) and Reason (R) are False.
Ans – a)
