Question

Assertion (A): Common-size Balance Sheet is the Vertical Analysis of Balance Sheet.

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

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

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

Explanation:

Assertion (A) is correct because a Common-size Balance Sheet evaluates structural components within a single period, which is a vertical analysis. Reason (R) perfectly explains this vertical nature because it details the exact step: the Total Assets figure is taken as the common base of 100, and all other asset or liability figures are calculated downwards as a direct percentage of that total.