Question by CA (Dr.) G.S.GREWAL – Series 40

True/False

1. The statement that compares items of profitability of a firm of different periods of time is Common Size Balance Sheet.

Fill in the Blank

1. The statement that shows percentage of items of profitability of a firm of the same period to a common base is called ______.

Multiple Choice Question

1. If Revenue from Operations for current year is ₹ 10,00,000 and proportionate increase is 25%, Revenue from Operations of the previous year?

(a)     ₹ 9,00,000

(b)     ₹ 6,00,000

(c)     ₹ 8,00,000

(d)     ₹ 7,00,000

1. False

Reason: Profitability is shown by Statement of Profit and Loss. Comparative Statement is prepared to compare items of two or more years of the firm taking previous year value as the base. Hence, the answer is “Comparative Statement of Profit and Loss”.

1. Comparative Balance Sheet
1. (c)

Reason: Current year’s Revenue from Operations is ₹ 10,00,000 and proportionate increase is 25% as compared to the previous year’s Revenue from Operations. Previous year’s Revenue from Operations is ₹ 8,00,000 calculated as follows ₹ 10,00,000X100/125.

Question – Series 41

1. If Shareholders’ Funds in the current year are ₹ 20,00,000 and absolute change is ₹ 6,00,000 the percentage change will be 35%.
1. In preparing Common size Balance Sheet, Common base taken is ______.

The statement that shows percentage of items of profitability of a firm of the same period to a common base is called:-

(a)     Comparative Statement of Profit and Loss.

(b)     Comparative Balance Sheet.

(c)     Common Size Statement of Profit and Loss.

(d)     Common Size Balance Sheet.

1. False

Reason: Percentage Change = ₹ 6,00,000/₹ 15,00,000 X 100 = 40%.

1. Balance Sheet Total
1. (c)

Reason: Profitability is shown by Statement of Profit and Loss. Common Size Statement is prepared to show percentage of items of Statement of Profit and Loss to a common base (Revenue from Operations) of the same year. Hence, the answer is “Common Size Statement of Profit and Loss”.

Question – Series 45

1. Notes to Accounts is not a technique of financial analysis.
1. Analysis and interpretation are _________ to each other.
1. The term Financial Analysis includes:

(a)     Analysis.

(b)     Interpretation.

(c)     Both analysis and interpretation.

(d)     Preparation of financial statements.

1. True

Reason: Notes to Accounts is an attachment to financial statements that states the Accounting Policies and Explanatory Notes of various entries in the Financial Statements. Common Size Statements, Ratio Analysis and Cash Flow Statements are the analytical tools.

1. Complementary
2. (c)

Reason: Analysis of financial statements are carried out using analytical tools like Comparative Statements, Common Size Statements, Accounting Ratios and Cash Flow Statement. Analysis will be useful only if it is interpreted to take a decision. Thus, Analysis and Interpretation are part of analysis of financial statements.

Question – Series 49

1. In preparing Comparative Financial Statements, percentage change is based on current year values.
1. Analysis and comparison of two enterprises will not be reliable if different ________ are adopted by them.
1. Choose the correct option from the following statements:

Statement I – Suppliers of long-term funds are concerned with firm’s long-term solvency

Statement II – Investors are interested about the credit worthiness of the firm.

(a)     Only Statement II is true

(b)     Only Statement I is true

(c)     Both Statements are true

(d)     Both Statements are false

1. False

Reason: In Comparative Financial statements, percentage change is based on previous year’s values and not current year’s values.

Correct Statement: In preparing Comparative Financial Statements, percentage change is based on previous year values.

1. accounting policies
1. (b) Only Statement I is true

Reason: Suppliers of long-term funds are interested in long-term solvency of the firm while investors are concerned with safety of their investments and return thereon.

Question – Series 62

1. The statement that compares items of financial position of a firm of different periods of time is Common Size Balance Sheet.
2. If Profit after Tax was ₹ 40,000 and Tax rate was 20%, then Profit before Tax was ₹ _________.
3. The statement that shows percentage of items of financial position of a firm of the same period to a common base is called ________

(a)     Common Size Statement of Profit and Loss.

(b)     Comparative Balance Sheet.

(c)     Common Size Statement of Profit and Loss.

(d)     Common Size Balance Sheet.

1. False

Reason: Financial Position is shown by the Balance Sheet. Comparative Statement is prepared to compare items of two or more years of the firm taking previous year value as the base. Hence the answer is “Comparative Balance Sheet”.

1. 50,000.
2. (c)

Reason: Financial position is shown by the Balance Sheet. Common Size

Statement is prepared to show percentage of items of Balance Sheet to a common base (Total of Assets / Liabilities Side) of the same year. Hence, the answer is “Common Size Statement of Profit and Loss”.

Question – Series 96

1. Intra-firm Comparison is Comparison of values between two or more firms..
2. Comparison of each component of Financial Statement for two accounting periods, prepared in a form reflecting financial data is known as _______.
3. Comparison of each component or item of Financial Statement for two or more accounting periods prepared of a firm in the form showing financial data is known as

(a)     Common size Statements

(b)     Comparative Statements

(c)     Ratio Analysis

(d)     Cash Flow Statement

1. False

Reason: In Intra-firm Comparative Statement value of one period is compared to another period of the same firm.

1. Comparative Statement
2. (b)

Reason: Comparative Statement means a comparative study of elements or components of Balance Sheet and Statement of Profit and Loss of  the firm for two or more years.

Question – Series 97

1. Inter-Firm Comparison of financial values of two firms of same period.

2 When Comparative Statement of the firm’s financial statements for two or more years is prepared, it is known as _______.

1. A Comparative Balance Sheet has _______ columns.

(a)     Two

(b)     Three

(c)     Six

(d)     Five

1. True

Reason: Inter-Firm Comparative Statement is a Statement in value or item or component is compared with the data of another firm for the same period.

1. Intra-firm Comparison
2. (c)

Reason: A Comparative Balance Sheet has 6 columns. First column is for elements of Balance Sheet in 2nd Column Note Number is given, in 3rd column amount of previous year are written in 4th column amount of current year are written in fifth column difference in amounts between the current year and previous year are written and in last column or sixth column percentage change is written taking column 3 as the base.

Question – Series 98

1. Comparative Statement indicates trend and helps in forecasting.
2. Comparative Statement of firm’s to compare financial values with that of another firm or with industry data is known as ________.
3. A company has Trade Receivables of ₹ 8,80,000 on 31st March, 2016 and ₹ 9,90,000 on 31st March, 2017. The percentage change is

(a)     20%

(b)     12.5%

(c)     15%

(d)     25%

1. True

Reason: Comparative Statement gives information about the changes affecting financial position and performance of an enterprise for two or more years hence, it shows a trend which helps in forecasting.

1. Inter-Firm Comparison
2. (b)

Reason: Percentage change is calculated as Absolute change/Amount of Previous Year X 100. Therefore the change is ₹ 1,10,000 and amount of previous year is ₹ 8,80,000. So the percentage is ₹ 1,10,000/₹8,80,000 X 100 = 12.5%.

Question – Series 99

1. Common-Size Statement indicates trend and helps in forecasting.
2. ________ Comparative Statement of firm’s financial statements is prepared with that of another firm or with industry data or with the budget.
3. A company has Trade Receivables amounted to ₹ 8,80,000 on 31st March, 2016 and ₹ 9,90,000 on 31st March, 2017. The percentage change is

(a)     20%

(b)     12.5%

(c)     15%

(d)     25%

1. True

Reason: Common-Size Statement helps in indicating trends.

1. Inter-Firm Comparison
2. (b)

Reason: Percentage change is calculated as Absolute change/Amount of Previous Year X 100. Therefore the change is ₹ 1,10,000 and amount of previous year is ₹ 8,80,000. So the percentage is ₹ 1,10,000/₹8,80,000 X 100 = 12.5%.

Question – Series 108

1. Comparative Balance Sheet and Comparative Statement of Profit and Loss are intra-firm analysis.
2. Comparison of values of two firms involving same accounting period is called ___comparison.
3. In a company, current assets are ₹ 6,30,000 and total assets are ₹ 9,00,000. The percentage of current assets to total asset will be:

(a)     57%

(b)     60%

(c)      70%

(d)     65%

1. False

Reason: Because the data being analysed is of the same enterprise. Hence they are intra-firm analysis.

1. Inter-firm
2. (c)

Reason: Current Assets are ₹ 6,30,000 and total assets are ₹ 9,00,000. Therefore percentage change is ₹ 6,30,000 / ₹ 9,00,000 X 100 = 70%.

Question – Series 111

1. Comparative Financial Statement is used in forecasting and planning.
2. Comparison of each component or item of financial statement for two or more accounting periods prepared by a firm reflecting financial data is known as _______.
3. Which technique of financial analysis shows a comparative study of items or components of financial statements for two or more years?

(a)     Common-Size Statement

(b)     Ratio Analysis

(c)      Comparative Statement

(d)     Cash flow Statement

1. True

Reason: Analysing changes and trend in the financial data of previous years helps the management in forecasting and planning.

1. Comparative Statement
2. (c)

Reason: Comparative study is a tool of financial analysis that shows change in cash item from the base year in absolute amount and in percentage, taking the amounts of the previous year as a base.

Question – Series 112

1. Bank charges are included in finance costs.
2. Balance Sheet and Statement of Profit and Loss together are known as _______.
3. Which of the following cannot be identified with the help of Comparative Statement of Profit and Loss?

(a)     Rate of increase or decrease in revenue from operations.

(b)     Rate of increase or decrease in trade receivables.

(c)      Rate of increase or decrease in incomes.

(d)     Rate of increase or decrease in net profit.

1. False

Reason: Bank charges are the expenses which are incurred on availing the service from the Bank.

1. Financial Statements
2. (b)

Reason: Trade Receivables or Debtors are not the part of profit and loss. It is subject of balance sheet.

Question – Series 113

1. The objective of Comparative Income Statement is to analyse each item of Revenue and Expense of two or more years.
2. A company has Fixed Assets ₹ 6,00,000; Non-Current Investments ₹ 1,00,000 and Current Assets ₹ 3,00,000. Percentage of Current Assets to Total Assets is _________.
3. While preparing Common-Size Balance Sheet each item of Balance Sheet is expressed as % of

(a)     Current Assets

(b)     Non-Current Assets

(c)      Non-Current Liabilities

(d)     Total Assets/Total Liabilities

1. True

Reason: Comparative Income Statement is used to analyse increase or decrease in each item of Revenue and Expense in terms of Rupees as well as Percentage for two or more yea₹

1. 30%
2. (d)

Reason: In Common-Size Balance Sheet, Total Assets or Total Equity and Liabilities are taken as 100 and all the figures are expressed as percentage of Revenue from operations.