100 MCQs of Financial Statement Analysis (class 12 Accountancy)

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Looking for important MCQs with answers of Financial Statement Analysis chapter of accountancy class 12 CBSE, ISC, and State Board.

We have compiled very important Multiple Choice Questions of financial statement analysis with answers to accountancy class 12.

Multiple Choice Questions with answers of Financial Statement Analysis chapter of class 12 Accountancy

Let’s Practice

Which of the following is not an objective of Analysis of Financial Statements?

a) To judge the financial health of the firm
b) To judge the short term and long term liquidity position of the firm
c) To judge the reasons for the change in the profitability of the firm
d) To judge the variations in the accounting practices of the business followed by different
enterprises

Ans – d)

From financial statement analysis, the creditors are interested to know

a) Liquidity
b) Profit
c) Efficiencies
d) Share Capital

Ans – a)

Feature of financial analysis is to present the data contained in financial
statement in

a) Easy form
b) Convenient and rational groups
c) Comparable form
d) All of the above

Ans – d)

Which analysis is considered as dynamic?

a) Horizontal Analysis
b) Vertical Analysis
c) Internal Analysis
d) External Analysis

Ans – a)

Financial Analysis is significant for

a) Employees
b) Creditors
c) Management
d) Al of these

Ans – d)

Who among the following is not an external user of the financial statement
analysis?

a) Shareholders
b) Debenture holders
c) Creditors
d) Management

Ans – d)

Which analysis is considered as static:

a) Horizontal Analysis
b) Vertical Analysis
c) Internal Analysis
d) External Analysis

Ans – b)

Which analysis is based only on one year’s data:

a) Cash flow statement
b) Dividend Analysis
c) Vertical Analysis
d) Horizontal Analysis

Ans – c)

Analysis of financial statement of an enterprise over a period of time
is known as:

a) Cross-sectional Analysis
b) Time Series Analysis
c) Static Analysis
d) External Analysis

Ans – b)

The area of interest for lenders while analyzing financial statements will be

a) Liquidity alone
b) Profitability and Liquidity
c) Solvency, Profitability, and Liquidity
d) None of these

Ans- c)

The main objective of an analysis of a financial statement is

a) To know the financial strength
b) To make a comparative study with other firms
c) To know the efficiency of management
d) All of the above

Ans – d)

Analysis of Financial Statement is significant:

a) For creditors
b) For managers
c) For employees
d) For all of the above

Ans – d)

The objective of analysis of the financial statement is

a) To determine liquidity (short term solvency) and long term solvency
b) To determine operating efficiency
c) To determine profitability
d) All of the above

Ans – d)

Analysis of financial statements of two or more enterprises is known as:

a) Cross-Sectional Analysis
b) Time Series Analysis
c) Horizontal Analysis
d) Internal Analysis

Ans – a)

The financial analysis becomes significant because it:

a) Ignores price level changes
b) Measures the efficiency of business
c) Lacks qualitative analysis
d) Is affected by personal bias

Ans – b)

When the bad position of the business is tried to be depicted as good, it is
known as __

a) Personal Bios
b) Price level changes
c) Window Dressing
d) All of the above

Ans – c)

Which of the following is not a limitation of financial statement analysis?

a) Historical analysis
b) ignores price changes
c) Free from business
d) Variation in accounting practices

Ans – c)

Financial Analysis can be used for

a) Security Analysis
b) Credit Analysis
c) Debt Analysis
d) All of these

Ans – d)

For whom the analysis of financial statements is not significant?

a) Investor
b) Government
c) Ambassador of India
d) Company’s Employee

Ans – c)

The main limitation of analysis of financial statements is:

a) Affected by window dressing
b) Difficulty in forecasting
c) Do not reflect changes in the price level
d) All of the above

Ans – d)

Cross-sectional Analysis involves

a) the comparison of financial statements of an enterprise for two or more accounting periods.
b) the comparison of financial statements of two or more enterprises for the same accounting period.
c) the comparison of the actual ratio of one firm with those of other similar firms belonging to the same industry
d) None of the above

Ans – c)

Comparison of actual ratios of one period with those of earlier periods for the same enterprise
is known as

a) Cross-sectional analysis
b) Time-series Analysis
c) Inter-firm Analysis
d) None of these

Ans – b)

Which of the following is a limitation of financial analysis?

a) It is just a study of reports of the company
b) It judges the ability of the firm to repay its debts
c) It identifies the reasons for the change in financial position
d) It ascertains the relative importance of different components of the financial position of the firm.

Ans – a)

Which of the following is not a limitation of analysis of financial statements?

a) Affected by personal bias
b) Inter-firm comparative study possible
c) Lack of Qualitative Analysis
d) Ignores price level changes

Ans – b)

Bankers and lenders are interested in financial analysis to judge:

a) Profitability
b) Liquidity
c) Solvency
d) Both b) and c)

Ans – d)

For whom analysis of financial statements is not significant?

a) Share market
b) Taxing officer
c) Chief Military officer
d) Shareholder

Ans – c)

Which of the following is not an objective of Analysis of Financial
Statements:

a) To Judge the financial health of the firm.
b) To judge the short term and long term liquidity position of the firm
c) To judge the reasons for a change in the profitability of the firm
d) To judge the variations in the accounting practices of the business
followed by different enterprises.

Ans – d)

Financial analysis becomes useless because it:

a) Measures the profitability
b) Measures the Solvency
c) Lacks Qualitative Analysis
d) Makes a Comparative Study

Ans – c)

Cross-Sectional analysis is also known as

a) Trend Analysis
b) Debt Analysis
c) Inter-firm Analysis
d) Intra firm Analysis

Ans – c)

Intra firm analysis is also known as

a) Time-series Analysis
b) Debt Analysis
c) Cross-sectional Anaylsis
d) Trend Analysis

Ans – a)

Analysis of financial statements is significant for:

a) Investors
b) Management
c) Financial Institutions
d) All fo these

Ans – d)

parties interested in financial analysis are:

a) Investors
b) Government
c) Financial Institutions
d) All of the above

Ans – d)

The main limitation of financial analysis is:

a) To know earning capacity
b) To know the financial strength
c) Do not reflect changes in the price level
d) Comparative study with other firms

Ans – c)

The main objective of an analysis of financial statement is:

a) to make a comparative study with others
b) to know the financial strength
c) to know the efficiency of management
d) All of these

Ans – d)

Which analysis is considered dynamic?

a) Horizontal Analysis
b) Vertical Analysis
c) Internal Analysis
d) External Analysis

Ans – a)

For whom analysis of financial statements is not significant?

a) Political Adviser of Prime Minister
b) Investors
c) Management
d) Financial Institutions

Ans – a)

Which of the following is not a limitation of analysis of financial statements?

a) Window dressing
b) Price level changes ignored
c) Subjectivity
d) Intra firm comparison possible

Ans – d)

Which analysis is considered static?

a) Horizontal Analysis
b) Vertical Analysis
c) Internal Analysis
d) External Analysis

Ans – b)

Why is a creditor interested in the analysis of financial statements?

a) To decide whether or not the borrower has the ability to repay interest
and principal on borrowed funds.
b) To determine the concern’s capital structure.
c) To determine the concern’s future earnings stream
d) To decide whether or not the concern has operated profitably in the past

Ans – a)

A firm is earning good profits but it becomes bankrupt because:

a) Earnings have increased more rapidly than sales
b) The firm has positive net income but has failed to generate cash from opearations
c) Net income has been adjusted from inflation.
d) sales have not improved even though credit policies have been eased.

Ans – b)

Creditors or suppliers are interested to know the

a) Profitability of the firm in relation to turnover
b) Profitability of the firm in relation to investments
c) Short term solvency/liquidity of the concern
d) Effective utilization of its (firms) resources

Ans – c)

Comparison of values of one period with those of another period for the same firm is

a) Itra firm comparison
b) Inter-firm comparison
c) Pattern comparison
d) Trend comparison

Ans – a)

Which of the following is not a limitation of financial statement analysis?

a) It is affected by personal bias.
b) Inter-firm comparative study possible
c) Lack of qualitative analysis
d) Ignores price level changes

Ans – b)

The process of comparing various financial factors of a company over a period of time is known as __

a) Inter-firm comparison
b) Ratio Analysis
c) Intra firm comparison
d) Inter-industry comparison

Ans – c)

Why is an investor interested in financial statement analysis?

a) To determine the firm’s solvency
b) To determine the stability of earnings
c) To assess it future performance
d) To determine its profitability and financial position.

Ans – d)

Which of the following is not a limitation of Analysis of Financial Statements?

a) Window Dressing
b) Price level changes ignored
c) Subjectivity
d) Intra firm comparison possible

Ans – d)

Which of the following is a limitation of Financial Analysis?

a) It is just a study of reports of the company
b) It judges the ability of the firm to repay its debts
c) It identifies the reasons for the change in a financial position
d) It ascertains the relative importance of different components of the financial position of the firm.

Ans – a)

_______ analysis involves the comparison of different firms’ financial ratios at the same point in time.

a) Time series
b) Cross-Sectional
c) Marginal
d) Quantitative

Ans – b)

__________ the analysis involves the study of the relationship between various items
of Balance Sheet or Statement of Profit and Loss of a single year or period.

a) Time series
b) Cross-Sectional
c) Vertical
d) Horizontal

Ans – c)

Horizontal Analysis provides information in

a) absolute form
b) percentage form
c) a) and b)
d) None of these

Ans – c)

Vertical Analysis provides information in

a) absolute form
b) Percentage form
c) a) and b)
d) None of these

Ans – b)

Which of these is not an objective of Financial Statement Analysis?

a) To judge the efficiency of management
b) To help the Management in decision making
c) To assess liquidity and solvency of the concern
d) To increase the profits of the concern

Ans – d)

Why is the management of a concern interested in financial statement analysis?

a) To determine the firm’s solvency
b) To determine the stability of earnings
c) To measure the effectiveness of its own decisions taken
d) To assess its future performance

Ans – c)

Management analyze the financial statement to consider the firms

a) Short term and long term solvency
b) effective utilisation of its resources
c) profitability in relation to turnover and investments
d) All of the above

Ans – d)

Financial Statment Analysis is undertaken by

a) Creditors only
b) Management only
c) Investors only
d) All of these

Ans – d)

In which technique of analysis figures of two or more periods of a Financial Statement are placed side by side to facilitate easy and meaningful comparisons?

a) Comparative Statement
b) Common size statement
c) Trend Analysis
d) None of these

Ans – a)

Time-series Analysis is an example of __

a) Static
b) Dynamic
c) External
d) Internal

Ans – b)

Cross Section Analysis is an example of _

a) Static
b) Dynamic
c) External
d) Internal

Ans – a)

________________analysis deals with same items of different period.

a) Static
b) Horizontal
c) Vertical
d) Internal

Ans – b)

______ the analysis deals with different items of the same period.

a) Dynamic
b) Horizontal
c) Vertical
d) Internal

Ans – c)

Ratio Analysis relating to a particular accounting period are an example of

a) Dynamic
b) Horizontal
c) Vertical
d) Internal

Ans – c)

Comparative Statements and cash flow statements are example of___________

a) Static
b) Horizontal
c) Vertical
d) Internal

Ans – b)

Which of the following is a technique of financial statement analysis?

a) Common size statement
b) Comparative Statement
c) Trend Analysis
d) All of these

Ans – d)

What are common-size financial statements?

a) Statements that express each account on the balance sheet as a percentage
of total assets and each account on the income statement as a percentage of net sales.
b) Statements that standardize financial data in terms of trends
c) Statements that relate the firm to the industry in which it operates.
d) Statements based on common sense and judgment.

Ans – a)

____________ is one of the most useful forms of horizontal analysis in making comparative study for the financial statement for a number of years.

a) Comparative statement
b) Trend Analysis
c) Common size Statement
d) Cash flow statement

Ans – a)

Which of the following items is assumed to be 100 while preparing a common size statement of Profit and Loss?

a) Income tax paid
b) Revenue from operations
c) Cost of material consumed
d) other incomes

Ans – b)

Comparison of financial statements highlights the _ of the business.

a) Financial position
b) Performance
c) Profitability
d) All of the above

Ans – d)

The statement prepared to do a comparative study of items in the Financial Statement is:

a) Comparative Statements
b) Common Size Statements
c) Financial Statements
d) None of the above

Ans – a)

The statement in which individual items of financial statement of two or more year
are placed side by side and converted into percentage of a common base is:

a) Comparative Statements
b) Common Size Statements
c) Financial Statements
d) None of the above

Ans – b)

___________ gives a diagnosis of the profitability and financial position of a concern.

a) Analysis of financial statements
b) Preparation of financial statements
c) Construction of statements
d) None of the above

Ans – a)

Under ____________ each item of expenses taken as a percentage of net sales

a) Comparative income statement
b) Comparative Balance Sheet
c) Common Size Balance Sheet
d) Common Size Income Statement

Ans – d)

Two related or interdependent components of financial statements are depicted
as an arithmetical expression in:

a) Common size
b) Comparative
c) Trend analysis
d) Ratio Analysis

Ans – d)

The statement showing sources and application of cash and cash equivalents
from one period to another is:

a) Common size statement
b) Cash flow statement
c) Comparative Statement
d) Financial Statement

Ans – b)

_ Step of financial statement analysis helps in drawing inferences
of conclusions.

a) Analysis
b) Interpretation
c) Comparison
d) None of the above

Ans – b)

Which of the following is not a tool of financial analysis?

a) Comparative income statement
b) Comparative position statement
c) Statement of profit and loss
d) Cash flow statement

Ans – c)

Which of the following is a limitation of financial analysis?

a) It is just a study of reports of the company.
b) It judges the ability of the firm to repay its debts
c) It identifies the reasons for a change in financial position.
d) It ascertains the relative importance of different components of the
financial position of the firm.

Ans – a)

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Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.
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