Question

Assertion (A): Common-size Balance Sheet is not a vertical analysis of Balance Sheet.

Reason (R): In Common-size Balance Sheet, total Assets value is taken as 100 and all other values of Assets, Equity and Liabilities are expressed as percentage of Total Assets value.

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

Options

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

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

• Assertion (A) is false, and Reason (R) is true.

• Assertion (A) is true, and Reason (R) is false.

Answer 1

Assertion (A) is false, and Reason (R) is true.

Explanation:

Assertion (A) is false because a Common-size Balance Sheet is a classic example of vertical analysis. Reason (R) is true because it correctly states that the Total Assets value is set as the common base of 100, and all other components are calculated as a percentage of that total.