Question

Assertion (A): Financial analysis suffer from the limitation of ignoring price level changes.

Reason (R): Financial analysis is based upon financial statements which do not show price level changes because all items in financial statements are recorded at cost and value of money in the latest year is not the same as it was in the previous years.

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

Options

• (A) and (R) both are correct and (R) correctly explains (A).

• Both (A) and (R) are correct but (R) does not explain (A).

• Both (A) and (R) are incorrect.

• (A) is correct but (R) is incorrect.

Answer 1

(A) and (R) both are correct and (R) correctly explains (A).