CBSE Class 12 Accountancy Analysis of Financial Statements Worksheet

Question. Main objective of analysis of financial statements is:
(A) To know the financial strength
(B) To make a comparative study with other firms
(C) To know the efficiency of management
(D) All of the Above
Answer. D

Question. Financial analysis becomes significant because it:
(A) Ignores price level changes
(B) Measures the efficiency of business
(C) Lacks qualitative analysis
(D) Is effected by personal bias
Answer. B

Question. Main limitation of analysis of financial statements is
(A) Affected by window dressing
(B) Difficulty in forecasting
(C) Do not reflect changes in price level
(D) All of the Above
Answer. D

Question. According to prescribed order of assets in a Company’s Balance Sheet ……………………… assets should be shown first of all.
(A) Non-Current Assets
(B) Current Assets
(C) Current Investments
(D) Loans and Advances
Answer. A

Question. Calls in advance appear in a Company’s Balance Sheet under ………………..
(A) Share Capital
(B) Current Liability
(C) Long-term Borrowings
(D) Reserve & Surplus
Answer. B

Question. ………appear in a Company’s Balance Sheet under the Sub-head Short-term Provision
(A) Interest Accrued but not due on Borrowings
(B) Provision for Tax
(C) Unpaid Dividend
(D) Calls in Advance
Answer. B

Question. Change in Inventories means :
(A) Difference between Opening Inventories and Closing Inventories
(B) Difference between Closing Inventories and Opening Inventories
(C) Difference between Opening Inventories and Closing Inventories, if Opening Inventories are higher
(D) Difference between Closing Inventories and Opening Inventories, if Closing Inventories are higher.
Answer. A

Question. Which of the following points out nature of financial statements? (i) Financial statements are prepared on the basis of recorded facts. (ii) Certain accounting conventions are followed while preparing financial statements. (iii) Financial statements are prepared on certain basic assumptions (pre-requisites) known as postulates. (iv) Facts and figures presented through financial statements are based on personal opinion, esti-mates and judgements.
(a) Only (i)
(b) (i),and(ii)
(c) (i),(ii) and (iii)
(d) (i) ,(ii),(iii) and (iv)
Answer. D

Question. Bank overdraft and cash credit are treated as 'short-term borrowings' in the balance sheet of a company.
(a) True
(b) False
(c) Partially true
(d) Can't say
Answer. C

Question. Amount provided for any known liability whose amount as yet isuncertain is known as:
(a) Liability
(b) Reserve
(c) Provision
(d) None of the above
Answer. B

Question. The assets which cannot be realised incash or from which no further benefit can be derived are known as:
(a) Tangible asset
(b) Fictitious asset
(c) Intangible asset
(d) None of the above
Answer. A

Question. Livestock is an item of......... under sub-head fixed asset and the major head non-current assets.
(a) tangible assets.
(b) inventories
(c) trade receivables
(d) intangible
Answer. A

Question. What will be the amount shown under the head current liabilities when the following data is given? Short-term borrowings=₹2,00,000 Trade Payables = 1,00,000 Other Current Liabilities = 1,50,000, Short-term Provisions=20,000
(a) ₹ 5,00,000
(b) 600,000
(c) 2,00,000
(d) 4,70,000
Answer. D

Question. Goodwill of a company amounting to 35,000 is shown on the assets side of the balance sheet under which of the following head?
(a) Non-current assets
(b) Current assets
(c) Non-current liabilities
(d) None of the above
Answer. A

Directions

There are two statements marked as Assertion (A) and Reason (R). Read the statements and choose the appropriate option from the options given below:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of As-sertion(A)
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A)is false, but Reason (R) is true
(d) Assertion (A ) is true, but Reason (R) is false

Question. Assertion (A) Bills receivable are shown as trade receivables in the balance sheet of the com-pany.
Reason (R) Debtors and bills receivable forms the part of trade receivables.
Answer. A

Question. Assertion (A) The bank charges charged by the bank are included in finance cost.
Reason (R) Bank charges are an expense not incurred in connection with raising finance but for availing the services of the bank.
Answer. C

Question. Assertion (A) Analysis of financial statements is done to assess the managerial efficiency.
Reason (R) Financial statement analysis helps to identify the areas where the managers have been efficient and the areas where they have been inefficient.
Answer. A

Direction : Read the following case study and answer questions on the basis of the same.

Care Ltd is a company that deals in manufacturing of pharmaceutical products. Dev has recently been hired as an assistant to the accountant of Care Ltd. The accountant of the firm Mr. Raj asks Dev to go for financial statement analysis to assess the financial position of the firm. To judge the knowledge and capabilities of Dev, Mr. Raj asked him to analyze the financial statements from the view point various parties interested in the firm like the management, the lenders, the inves-tors, government etc.

Question. Which of the following statements will primarily be utilised by Dev for the purpose of finan-cial statement analysis?
a) Balance sheet and cash flow statement.
b) statement of profit and loss and cash flow statement
c) balance sheet and statement of profit and loss
d) cash flow statement and fund flow statement.
Answer. C

Question. If Dev is to analyse the financial statements for the top management, what should he consider?
a) Short-term liquidity of the firm.
b) Ability to pay its long-term lenders.
c) The resources of the firm are used most efficiently and that the firm's financial condition is sound.
d) None of the above
Answer. C

Question. If Dev is to analyse the financial statements for the short-term lenders, what should he consider?
a) Short-term liquidity of the firm
b) Long-term solvency of the firm
c) The resources of the firm are used most efficiently and that the firm's financial condition is sound
d) None of the above
Answer. A

Question. If Dev is to analyse the financial statements for the investors, what should he consider?
a) Firm's present and future profitability
b) Ability to pay its long-term lenders
c) Firm's capital structure
d) Both (a) and (c)
Answer. D

Question. While analysing the financial statements, Dev should be conscious of which of the following?
a) Changes in accounting policies of the firm
b) Personal judgements
c) Window dressing of financial statements
d) All of the above
Answer. D

Question. Match the following:
a. Interest paid on debentures                            (i) depreciation
b. Fixed assets written off over their useful life    (ii) other expenses
c. cheques                                                       (iii) financial cost
d. discount allowed                                           (iv) other current liabilities
Answer. A

Question. Explain the importance of financial analysis for (i) labour unions, and (ii) creditors
Answer. (i) Importance for Labour Unions: Labour unions analyse the financial statements to assess whether it can presently afford a wage increase and whether it can absorb a wage increase through increased productivity or by raising the prices.
(ii) Importance for Creditors: Creditors through an analysis of Financial Statements appraises not only the ‘ ability of the company to meet its short term obligations but also judges the probability of its continued ability to meet its financial obligations in future.

Question. State the objectives of ‘Analysis of Financial Statements’.
Answer. Objectives of‘Financial Statements Analysis’:
1.Assessing the earning capacity or profitability of the firm as a whole as well as its different departments so as to judge the financial health of the firm.
2. Assessing the managerial efficiency by using financial ratios to identify favourable and unfavourable variations in managerial performance.

Question. State any four limitations of analysis of financial statements.
Answer. Limitations of ‘Financial Statements Analysis’:
(a) Different Accounting Principles and Practices. Financial analysis is subject to lim-itations inherent in the financial statements like following different accounting princi-ples or practices regarding depreciation methods, inventory valuation and pricing, etc.
(b) Ignores the Quality Elements. Financial statements contain only financial data and exclude from the preview of qualitative information, which cannot be expressed in money terms. Thus, analysis of such financial statements will also lack quality ele-ment.
(c) Ignores Price Level Changes. Transactions, in financial statements, are recorded on historical cost basis and generally no adjustment is made for price level changes. Thus, the analysis of financial statement will not yield comparable results due to lack of ad-justments for the price level changes.
(d) Affected by Window Dressing. Some firms may resort to window dressing (show-ing better picture) to cover-up bad financial position. For example, closing stock may be overstated. In such case, the results of analysis will also be misleading.

Question. State the importance of Financial Analysis?
Answer. Financial Analysis has great importance to various accounting users on various mat-ters. Income Statements, Balance Sheets and other financial data provides information about expenses and sources of income, profit or loss and also helps in assessing the financial position of a business. These financial data are not useful until they are ana-lysed. There are various tools and methods such as Ratio Analysis, Cash Flow State-ments that make the financial data to cater varying needs of various accounting users. The following are the reasons that advocate in favour of Financial Analysis:
1. It helps in evaluating the profit earning capacity and financial feasibility of a busi-ness.
2. It helps in assessing the long-term solvency of the business.
3. It helps in evaluating the relative financial status of a firm in comparison to other competitive firms.
4. It assists management in decision making process, drafting various plans and also in establishing an effective controlling system

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