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

 

 

 

 

Question. Interpretation of Financial Statements includes:
(a) Criticisms and Analysis
(b) Comparison and Trend Study
(c) Drawing Conclusion
(d) All the above
Answer: (d)

Question. Horizontal Analysis is also known as :
(a) Dynamic Analysis
(b) Structural Analysis
(c) Static Analysis
(d) None of these
Answer: (a)

Question. Vertical Analysis is also known as :
(a) Static Analysis
(b) Dynamic Analysis
(c) Structural Analysis
(d) None of these
Answer: (a)

Question. Comparative Statements are also known as :
(a) Dynamic Analysis
(b) Horizontal Analysis
(c) Vertical Analysis
(d) External Analysis
Answer: (b)

Question. Common-size Statement are also known as:
(a) Dynamic Analysis
(b) Horizontal Analysis
(c) Vertical Analysis
(d) External Analysis
Answer: (c)

Question. The most commonly used tools for financial analysis are:
(a) Comparative Statements
(b) Common-size Statement
(c) Accounting Ratios
(d) All the above
Answer: (d)

Question. The analysis of financial statement by a shareholder is an example of:
(a) External Analysis
(b) Internal Analysis
(c) Vertical Analysis
(d) Horizontal Analysis
Answer: (a)

Question. For calculating trend percentages any year is selected as:
(a) Current year
(b) Previous year
(c) Base year
(d) None of these
Answer: (c)

Question. Tools for comparison of financial statements are :
(a) Comparative Balance Sheet
(b) Comparative Income Statement
(c) Common-size Statement
(d) All the above
Answer: (d)

Question. Trend ratios and trend percentage are used in :
(a) Dynamic analysis
(b) Static analysis
(c) Horizontal analysis
(d) Vertical Analysis
Answer: (c)

Question. Comparative Financial Statements show:
(a) Financial position of a concern
(b) Earning capacity of a concern
(c) Both of them
(d) None of these
Answer: (c)

Question. Comparative financial analysis process shows the comparison between the items of which statement:
(a) Balance Sheet
(b) Profit & Loss Statement
(c) (a) and (b) both
(d) None of these
Answer: (c)

Question. Which of these are not the method of financial statement analysis ?
(a) Ratio Analysis
(b) Comparative Analysis
(c) Trend Analysis
(d) Capitalisation Method
Answer: (d)

Question. Common-size financial statements are mostly prepared:
(a) In proportion
(b) In percentage
(c) (a) and (b) both
(d) None of these
Answer: (b)

Question. Tangible assets of company increased from \( Rs 4,00,000 \) to \( Rs 5,00,000 \). What is the percentage of change ?
(a) \( 20\% \)
(b) \( 25\% \)
(c) \( 33\% \)
(d) \( 50\% \)
Answer: (b)

Question. A company’s shareholders fund was \( Rs 8,00,000 \) in the year 2015. It became \( Rs 12,00,000 \) in the year 2016. What is percentage of change ?
(a) \( 100\% \)
(b) \( 25\% \)
(c) \( 50\% \)
(d) \( 33.3\% \)
Answer: (c)

Question. A company’s net sales are \( Rs 15,00,000 \); cost of sales is \( Rs 10,00,000 \) and indirect expenses are \( Rs 3,00,000 \), the amount gross profit will be:
(a) \( Rs 13,00,000 \)
(b) \( Rs 5,00,000 \)
(c) \( Rs 2,00,000 \)
(d) \( Rs 12,00,000 \)
Answer: (c)

Question. Sales less Cost of goods sold is called :
(a) Operating Profit
(b) Gross Profit
(c) Net Profit
(d) Total Profit
Answer: (b)

Question. If total assets of a firm are \( Rs 12,00,000 \) and its non-current assets are \( Rs 9,00,000 \), what will be the percentage of non-current assets to total assets ?
(a) \( 50\% \)
(b) \( 75\% \)
(c) \( 25\% \)
(d) \( 80\% \)
Answer: (b)

Question. If total assets of a firm are \( Rs 10,00,000 \) and its non-current assets are \( Rs 6,00,000 \), what will be the percentage of current assets on total assets ?
(a) \( 60\% \)
(b) \( 50\% \)
(c) \( 40\% \)
(d) \( 30\% \)
Answer: (c)

Question. In a common-size Balance Sheet, total equity and liabilities are assumed to be equal to :
(a) 1,000
(b) 100
(c) 10
(d) 1
Answer: (b)

Question. Break-even point refers to that point where :
(a) Total Costs are more than Total Sales
(b) Total Costs are less than Total Sales
(c) Total Costs are half of the Total Sales
(d) Total Cost are equal to total sales
Answer: (d)

Question. Payment of Income Tax is considered as :
(a) Direct Expenses
(b) Indirect Expenses
(c) Operating Expenses
(d) None of these
Answer: (b)

Question. Vertical Analysis is also known as :
(a) Fluctuation Analysis
(b) Static Analysis
(c) Horizontal Analysis
(d) None of these
Answer: (b)

Question. Financial analysis is useful:
(a) For Investors
(b) For Shareholders
(c) For Debenture holders
(d) All the above
Answer: (d)

Question. Analysis of financial statements involve :
(a) Trading A/c
(b) Profit & Loss statement
(c) Balance Sheet
(d) All the above
Answer: (d)

Question. Financial analysis is significant because it:
(a) Ignores qualitative aspect
(b) Judges operational efficiency
(c) Suffers from the limitations of financial statements
(d) It is affected by personal ability and bias of the analysis
Answer: (b)

Question. What is shown by the Income Statement ?
(a) Accuracy of books of accounts
(b) Profit or loss of a certain period
(c) Balance of Cash Book
(d) None of these
Answer: (b)

Question. What is shown by Balance Sheet ?
(a) Accuracy of books of accounts
(b) Profit or loss of a specific period
(c) Financial position on a specific date
(d) None of the above
Answer: (c)

Question. Which of the following is the purpose or objective of financial analysis ?
(a) To assess the current profitability of the firm
(b) To measure the solvency of the firm
(c) To assess the short-term and long-term liquidity position of the firm
(d) All the above
Answer: (d)

Question. Out of the following which parties are interested in financial statements ?
(a) Managers
(b) Financial Institutions
(c) Creditors
(d) All the these
Answer: (d)

Question. Which of the following is not a limitations of financial statement analysis ?
(a) To measure the financial strength
(b) Affected by window-dressing
(c) Do not reflect changes in price level
(d) Lack of Qualitative Analysis
Answer: (a)

Question. Break-even Analysis shows:
(a) Relationship between cost and sales
(b) Relationship between production and purchases
(c) Relationship between cost and revenue
(d) None of these
Answer: (a)

Question. Which of the following shows the actual financial position of nenterprise ?
(a) Fund Flow
(b) Balance Sheet
(c) P & L A/c
(d) Ratio Analysis
Answer: (b)

Question. The financial statements of a business enterprise include:
(a) Balance Sheet
(b) Profit & Loss Account
(c) Cash Flow Statement
(d) All the above
Answer: (d)

Question. An annual report is issued by company to its :
(a) Directors
(b) Auditors
(c) Shareholders
(d) Management
Answer: (c)

Question. Balance Sheet provides information about financial position of the enterprise :
(a) At a Point of Time
(b) Over a Period of Time
(c) For a Period of Time
(d) None of the above
Answer: (a)

Question. Profit & Loss Account is also called :
(a) Balance Sheet
(b) Income Statements
(c) Operating Profit
(d) Investment
Answer: (b)

Question. Which of the following statement is correct ?
(a) Assets = Liabilities + Shareholders funds
(b) Assets = Total funds
(c) Assets = Funds of outsiders .
(d) None of the above
Answer: (a)

Question. In which meeting of company directors report is presented ?
(a) Directors Meeting
(b) Annual General Meeting
(c) Manager’s Meeting
(d) All of the above
Answer: (b)

Question. On the basis of process, which of the following is the type of financial analysis ?
(a) Horizontal Analysis
(b) Vertical Analysis
(c) Ratio Analysis
(d) (a) and (b) both
Answer: (d)

Question. Which Of the following is limitation of financial analysis ?
(a) Window-dressing
(b) Basis of Valuation
(c) Lack of Accuracy
(d) All the above
Answer: (d)

Question. Which of the following is not the limitations of financial analysis ?
(a) Lack of Accuracy
(b) Based on Historical facts
(c) Basis of Valuation
(d) Information of Profit and Loss
Answer: (d)

Question. When Financial Statements of two or more organisations are analysed, it is called :
(a) Intra-firm Analysis
(b) Inter-firm Analysis
(c) Vertical Analysis
(d) None of these
Answer: (b)

Question. Which of the following statement correct ?
(a) Retained Earnings = Total Income
(b) Retained Earnings = Revenue-expenses
(c) Retained Earnings = Gross Profit
(d) None of the above
Answer: (b)

Question. Which of the following is a type of Financial Analysis on the basis of material used ?
(a) Internal Analysis
(b) External Analysis
(c) Internal Audit
(d) Both (a) and (b)
Answer: (d)

Please click on below link to download CBSE Class 12 Accountancy Analysis of Financial Statements Worksheet