Question

Assertion (A): Comparative balance sheet is the horizontal analysis of balance sheet.

Reason (R): Common-size balance sheet is the vertical analysis of balance sheet.

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 but (R) is not the correct reason of (A).

Explanation:

A comparative balance sheet involves horizontal analysis, as it compares figures of two or more periods to identify changes and trends over time. In contrast, a common-size balance sheet represents vertical analysis, where each item is expressed as a percentage of total assets to show its relative proportion. Therefore, while both statements are true, the reason does not directly explain the assertion.