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![TS Grewal solutions for Accountancy Analysis of Financial Statements [English] Class 12 chapter 2 - Financial Statement Analysis - Shaalaa.com](/images/accountancy-analysis-of-financial-statements-english-class-12_6:b683741d06224defaee71d239118ce40.jpg "TS Grewal solutions for Accountancy Analysis of Financial Statements [English] Class 12 chapter 2 - Financial Statement Analysis")
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Solutions for Chapter 2: Financial Statement Analysis
Below listed, you can find solutions for Chapter 2 of CBSE TS Grewal for Accountancy Analysis of Financial Statements [English] Class 12.
TS Grewal solutions for Accountancy Analysis of Financial Statements [English] Class 12 2 Financial Statement Analysis QUESTIONS [Pages 2.8 - 2.12]
MULTIPLE CHOICE QUESTIONS (MCQs) Select the correct alternative:
Which of the following is not a tool of Analysis of Financial Statements?
Ratio Analysis
Comparative Statement
Statement of Profit & Loss
Cash Flow Statement
Which of the following is not an objective of Analysis of Financial Statements:
To judge the financial health of the firm.
To judge the short-term and long-term liquidity position of the firm.
To judge the reasons for change in the profitability of the firm.
To judge the variations in the accounting practices of the business followed by different enterprises.
From financial statement analysis the creditors are specially interested to know _______.
Liquidity
Profits
Sale
Share Capital
Efficiencies
In preparing Common-size Balance Sheet, each item of Balance Sheet is expressed as % of ______.
Non-current Assets.
Current Assets.
Non-current Liabilities.
Total Assets.
Which of the following tools of ‘Analysis of Financial Statements’ indicate the trend and direction of financial position and operating results?
Comparative Statement
Common size statements
Cash flow analysis
Ratio Analysis
The tool of analysis of financial statements which indicates the trend and direction of financial position and operating results is ______.
Comparative Statements
Common Size Statements
Cash Flow Analysis
Ratio Analysis
Which analysis is considered as dynamic?
Horizontal Analysis
Vertical Analysis
Internal Analysis
External Analysis
Which analysis is considered as static:
Horizontal Analysis
Vertical Analysis
Internal Analysis
External Analysis
Creditors or suppliers are interested to know the ______.
Profitability of the firm in relation to turnover.
Profitability of the firm in relation to investments.
Short-term solvency/liquidity of the concern.
Effective utilisation of its (firm’s) resources.
Analysis of Financial Statements is useful and significant to different users. Which of the following users is particularly interested in the firm’s ability to meet their claims over a very short period of time?
Labour Unions
Trade Payables
Top Management
Finance Manager
Comparison of values of one period with those of another period for the same firm is ______.
Intra-firm comparison
Inter-firm comparison
Pattern comparison
Trend comparison
Comparison of actual values of one firm with those of another firm belonging to the same industry is ______.
Intra-firm comparison.
Inter-firm comparison.
Pattern comparison.
Standard comparison.
For whom analysis of Financial Statement is not significant?
GST officer
Police officer
Shareholders
Employee of the Company
Cross-section analysis is also known as ______.
Debt Analysis
Trend Analysis
Inter-firm Analysis
Intra-firm Analysis
Which of the following is not a limitation of Financial Statement Analysis?
It is affected by personal bias.
Inter-firm comparative study possible.
Lack of qualitative analysis.
Ignores price level changes.
Which of the following is not a limitation of the analysis of financial statements?
Window dressing
Price level changes ignored
Subjectivity
Intra firm comparison possible
Which of the following is a limitation of financial analysis?
It is just a study of reports of the company.
It judges the ability of the firm to repay its debts.
It identifies the reasons for change in financial position.
It ascertains the relative importance of different components of the financial position of the firm.
Financial statement analysis includes ______ and ______ of financial statements.
Analysis, preparation
Preparation, interpretation
Preparation, analysis
Analysis, interpretation
When an analyst analysis the financial statements of an enterprise over a number of years, the analysis is called ______ analysis.
Static
External
Horizontal
Vertical
Analysis of Financial Statement is significant for ______.
Management
Creditors
Employees
All of these.
Financial Analysis can be used for:
Security Analysis
Credit Analysis
Dividend Decisions
All of these.
Management is interested in financial analysis since ______.
It provides information about the overall financial performance of the enterprise.
It provides information about the financial position of the enterprise.
It provides information about the financial performance and financial position of the enterprise as a whole and its various divisions.
None of the above.
Analysis of financial statements is very useful for making qualitative judgment about the ______.
Liquidity and long-term solvency of the enterprise.
Operating Efficiency of the enterprise.
Profitability of the enterprise.
All of the above.
From the following, identify the incorrect statement related to ‘Analysis of Financial Statements’.
Financial Statement Analysis is used only by the creditors.
Financial Statement Analysis does not take price level changes into consideration.
Financial Statement Analysis ignores non-monetary aspects.
Financial StatementAnalysis helps to identify the reasons for change in profitability and financial position of the firm.
Match Column I with Column II and select the correct answer using the codes given below the columns:
| Column I | Column II | ||
| A. | Horizontal Analysis | 1. | Conducting for one accounting period. |
| B. | Vertical Analysis | 2. | Comparison of financial statements of an enterprise for two or more accounting periods. |
| C. | Intra-firm Analysis | 3. | Conducted for two or more accounting periods. |
| D. | Inter-firm Analysis | 4. | Comparison of financial statements of two or more enterprises for the same accounting period. |
A - 4, B - 3, C - 2, D - 1.
A - 3, B - 1, C - 2, D - 4.
A - 3, B - 2, C - 4, D - 1.
A - 2, B - 3, C - 4, D - 1.
Which of the following statement is incorrect?
Intra-firm analysis is a comparison of financial statements of an enterprise for two or more accounting periods.
Inter-firm analysis is a comparison of financial statements of two or more enterprises for the same accounting period.
Vertical analysis provides information in absolute and percentage form.
An income statement indicates the financial position of an enterprise for an accounting period.
Which of the following statements are false?
- When all the comparative figures in a balance sheet are stated as percentage of the total, it is termed as horizontal analysis.
- When financial statements of several years are analysed, it is termed as vertical analysis.
- Vertical Analysis is also termed as time series analysis.
Both (a) and (b)
Both (a) and (c)
Both (b) and (c)
All three (a), (b), (c)
ASSERTION-REASON-BASED MCQS Given below are two statements (in each question), one labelled as Assertion (A) and other labelled as Reason (R):
Assertion (A): Financial Statement Analysis is a systematic process of analysing the financial data for its easy understanding and decision-making.
Reason (R): Financial Statements are analysed using analytical tools such as Comparative Statements, Common-size Statements, Ratios and Cash Flow Statement.
In the context of the above two statements, which option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
Assertion (A): Financial Statement Analysis is undertaken by investors, lenders and creditors for assessing the safety of the amount invested in the company.
Reason (R): Investors, lenders and creditors undertake the financial statements analysis because they have invested their money in the company and have either indirect control or no control on the affairs of the company.
In the context of the above two statements, which option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
Assertion (A): Comparative Statement is a vertical analysis while Common-size Statement is a horizontal analysis.
Reason (R): Comparative Statement is a vertical analysis because an item of two years are compared. The common-size statement is horizontal analysis because an item of the financial statement is converted into a percentage of the common base of the same year.
In the context of the above two statements, which option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
Assertion (A): Analysis of Financial Statements helps in assessing the present earning capacity as well as the future earning capacity.
Reason (R): With the help of Financial Statement analysis profitability can be assessed with reference to sales as well as capital invested in the business.
In the context of the above two statements, which option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
Assertion (A): Limitations of Financial Statements, such as the influence of accounting concepts, disclosure of only monetary facts, etc., are also the limitations of financial analysis.
Reason (R): Financial Statements are used as the basis of financial analysis.
In the context of the above two statements, which option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
Assertion (A): Financial Analysis is affected by the personal ability and bias of the analyst.
Reason (R): There is scope for diversity of opinion as to what constitutes shareholders’ equity, debt, assets, profit and so on.
In the context of the above two statements, which option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
Assertion (A): Horizontal Analysis is generally useful in Cross-sectional Analysis.
Reason (R): Horizontal Analysis does not provide information in absolute and percentage form.
In the context of the above two statements, which option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
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 option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
Assertion (A): ‘Vertical Analysis’ is also known as ‘Static Analysis’.
Reason (R): Vertical Analysis is based on the data of a single year.
In the context of the above two statements, which option is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
Assertion (A): Vertical Analysis provides information in absolute and percentage form.
Reason (R): Vertical Analysis is useful in making intra-firm comparisons.
In the context of the above two statements, which of the above options is correct?
Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation for Assertion (A).
Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation for Assertion (A).
Assertion (A) is correct, but Reason (R) is not correct.
Both Assertion (A) and Reason (R) are not correct.
TS Grewal solutions for Accountancy Analysis of Financial Statements [English] Class 12 2 Financial Statement Analysis TEST YOUR KNOWLEDGE [Pages 2.13 - 2.14]
Which of the following is not a tool of financial analysis?
Comparative income statement
Comparative position statement
Statement of profit and loss
Cash flow statement
Ratio Analysis
Comparative Statement
Which of the following is not a limitation of the analysis of financial statements?
Window dressing
Price level changes ignored
Subjectivity
Intra firm comparison possible
Which analysis is considered as dynamic?
Horizontal Analysis
Vertical Analysis
Internal Analysis
External Analysis
Which analysis is considered as static:
Horizontal Analysis
Vertical Analysis
Internal Analysis
External Analysis
______ Analysis means analysis and review of financial statements for a single year.
Dynamic
Static
The area of interest for a creditor while analysing financial statements will be ______.
Solvency
Liquidity
Profitability
None of these.
Which of the following is not an objective of Analysis of Financial Statements:
To judge the financial health of the firm.
To judge the short-term and long-term liquidity position of the firm.
To judge the reasons for change in the profitability of the firm.
To judge the variations in the accounting practices of the business followed by different enterprises.
Which of the following is/are objectives of analysis of financial statements?
To assess the earning capacity.
To measure the management's efficiency.
To make inter-firm and intra-firm comparison.
All of the above.
Which of the following is a limitation of financial analysis?
It is just a study of reports of the company.
It judges the ability of the firm to repay its debts.
It identifies the reasons for change in financial position.
It ascertains the relative importance of different components of the financial position of the firm.
Which of the following statement is incorrect?
Intra-firm analysis is a comparison of financial statements of an enterprise for two or more accounting periods.
Inter-firm analysis is a comparison of financial statements of two or more enterprises for the same accounting period.
Vertical analysis provides information in absolute and percentage form.
An income statement indicates the financial position of an enterprise for an accounting period.
Read the following statements, I and II. Choose the correct option from the options given below:
Statement I: Horizontal Analysis gives information in absolute and percentage form.
Statement II: Vertical Analysis gives information in percentage.
Both statements are correct.
Both statements are incorrect.
Statement I is correct, and Statement II is incorrect.
Statement II is correct, and Statement I is incorrect.
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?
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).
What is meant by ‘Analysis of Financial Statement’?
What is Horizontal Analysis?
One ofthe important objectives of analysis of financial statements is to assess the ability ofthe enterprise to meet its short-term obligations as and when they become due.
Identify the objective of financial statement analysis highlighted in the above statement. Also explain two other objectives of financial analysis.
Briefly explain the importance of financial analysis for a finance manager.
Briefly explain the importance of financial analysis for top management.
State how Price Level changes are ignored in Financial Statement Analysis.
Solutions for 2: Financial Statement Analysis
TS Grewal solutions for Accountancy Analysis of Financial Statements [English] Class 12 chapter 2 - Financial Statement Analysis
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