Question

Assertion (A): In a common-size statement, figures of previous year are taken as base for comparison.

Reason (R): Common-size statements enable horizontal analysis.

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

Both (A) and (R) are incorrect.

Explanation:

A common-size statement expresses each item as a percentage of a common base for the same year, rather than comparing figures from previous years. Also, it is used for vertical analysis not horizontal analysis.