Question

Assertion (A): Common-size statement of profit and loss is the vertical analysis of items of revenue and expenses.

Reason (R): In common size statement of profit and loss, revenue from operations is taken as 100 and all other items of revenue and expenses are expressed as a percentage of revenue from operations.

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

Options

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

• Both (A) and (R) are correct but (R) is not the correct reason of (A).

• Only (R) is correct.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) are correct and (R) is the correct reason of (A).

Explanation:

A common-size statement of profit and loss involves vertical analysis, with revenue from operations taken as 100 and all other elements shown as percentages for easy comparison so both the assertion and the reason are correct, and the reason properly explains the assertion.