Question

Assertion (A): Common-size balance sheet is the horizontal analysis of balance sheet.

Reason (R): In Common-size balance sheet total of assets is taken as 100 and all other items of assets, liabilities and shareholder’s funds are expressed as percentage of total assets.

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

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

(A) is false, but (R) is true.

Explanation:

A common-size balance sheet represents vertical analysis rather than horizontal analysis. In this statement, the amount of assets (or liabilities) is taken as 100, and all other components are expressed as a percentage of the total assets to show their relative proportion.