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Question
Statement I: Common-size Statement is the horizontal analysis of financial statements.
Statement II: Shareholders’ Funds is taken as common base for Common-size Balance Sheet.
Options
Both statements are true.
Both statements are false.
Statement I is true, and Statement II is false.
Statement I is false, and Statement II is true.
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Solution
Both statements are false.
Explanation:
Both statements are false because a Common-size Statement is a vertical analysis (not horizontal) tool that evaluates financial data from a single accounting period by converting every line item into a percentage of a chosen base. Furthermore, Statement II is false because the common base used for a Common-size Balance Sheet is Total Assets or Total Equity and Liabilities (assumed to be 100%), rather than Shareholders’ Funds alone.
