Question

Assertion (A): Comparative Statement is a vertical analysis while Common-size Statement is a horizontal analysis.

Reason (R): Comparative Statement is a vertical analysis because an item of two years are compared. The common-size statement is horizontal analysis because an item of the financial statement is converted into a percentage of the common base of the same year.

In the context of the above two statements, which option is correct?

विकल्प

• Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).

• Assertion (A) is correct, but Reason (R) is not correct.

• Both Assertion (A) and Reason (R) are not correct.

Answer 1

Both Assertion (A) and Reason (R) are not correct.

Explanation:

Both statements are completely false because the definitions are reversed. In reality, a Comparative Statement is a horizontal analysis because it compares individual items side-by-side across two or more years. Conversely, a Common-size Statement is a vertical analysis because it looks at a single year and converts each item into a percentage of a common base from that same year.