Question

Assertion (A): ‘Horizontal Analysis’ is also known as ‘Dynamic Analysis’.

Reason (R): Horizontal Analysis is based on data of two or more years rather than only one year.

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

Options

• Assertion (A) is correct, but Reason (R) is wrong.

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

• Both Assertion (A) and Reason (R) are incorrect.

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is correct explanation of Assertion (A).

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 Horizontal Analysis evaluates financial data across multiple time periods, making its perspective fluid and dynamic. Reason (R) is also correct and provides the exact logical explanation because this analysis relies on side-by-side data from two or more consecutive financial years to compute actual increases or decreases. Because it tracks changing trends over time rather than freezing data into a single year’s static snapshot, it is officially classified as a dynamic analysis.