Tag: analysis of financial statements

Questions Related to analysis of financial statements

Common-size Income Statement is that statement in which amount of Revenue from Operations is taken as 100 and all other amounts are expressed as percentage thereof.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. True

  2. False

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Correct Option: A
Explanation:

True. Common-size Income statement is the vertical analysis of Income Statement. A vertical analysis is shows all items as percentages and not in absolute figures which provides better comparison. Each line item is expressed as a percentage figure of the base figure within the statement. The base is always shown as 100. 

A financial statement that shows both rupees and percentages in the report is referred to as ______________.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. A Balance sheet

  2. A Common size statement

  3. A Proportional financial statement

  4. A Relative statement of equity

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Correct Option: B

Which of the following is/are objective of common-size income statement?

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. To analyse change in individual items of statement of Profit and Loss.

  2. To study the trend in different items of Revenues and Expenses.

  3. To assess the efficiency.

  4. All of the above

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Correct Option: D

Common-size Balance Sheet shows _______________.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. Assets, Equity and Liabilities in absolute values.

  2. Assets and Liabilities as percentage of total assets or total equity and liabilities.

  3. Both (a) and (b)

  4. None of the above

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Correct Option: C

Common-size Income Statement is the vertical analysis of Income Statement.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. True

  2. False

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Correct Option: A
Explanation:

True. Common-size Income statement is the vertical analysis of Income Statement. A vertical analysis is shows all items as percentages and not in absolute figures which provides better comparison. Each line item is expressed as a percentage figure of the base figure within the statement. 

Objectives of common-size income statement is/are ________________.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. To analyse change in individual items of statement of profit and loss.

  2. To study the trend in different items of revenues and expenses.

  3. To assess the efficiency.

  4. All of the above

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Correct Option: D
Explanation:

Objectives of common-size income statement are to analyse change in individual items of statement of profit and loss, to study the trend in different items of revenues and expenses and to assess the efficiency of the enterprise. 

'To determine the trend of different items of statement', is one of the objectives of common-size statements.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. True

  2. False

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Correct Option: A
Explanation:

True. To determine the trend of different items of statement is one of the objectives of common size statements. It measure the relationship of different items of financial statements with a common variable. 

Which of the following statements are true?
a. Common size balance sheet shows relative value of the various items.
b. In the common size income statement, each product is represented as a percentage of the net sales figure.
c. Common size income statements represents the various element as a percentage of the gross profit.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (c)

  4. All of the above

Show answer
Correct Option: A
Explanation:

Common size statement, also known as component percentage statement, is a financial tool for studying the key changes and trends in the financial position and operational result of a company. Common size balance sheet shows relative value of the various items. In common size income statement, the item of expenditure are shown as percentage of the net sales. 

Common size analysis is also known as ______ analysis.

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. Horizontal

  2. Ratio

  3. Vertical

  4. Trend

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Correct Option: C
Explanation:

Common size statement is a financial tool for studying the key changes and trends in the financial position and operational result of a company. common size analysis is also known as vertical analysis. Common size statements are useful, both, in inter-firm comparisons for the same year or for several years.

A common size balance sheet shows the percentage of each asset to the _____, and that of each liability to the ___. 

book keeping and accountancy analysis of financial statements preparation of common size statements comparative statements and common-size statements tools of financial statement analysis - comparative and common-size statements

  1. Total current assets, Total current liabilities

  2. Liabilities, Assets

  3. Total assets, Total liabilities

  4. None of the above

Show answer
Correct Option: C
Explanation:

Common size statement is stated as a percentage of the aggregate, of which that item is a part i.e. common size balance sheet shows the percentage of each asset to the total assets, and that of each liability to the total liabilities. The common size statement is also known as component percentage statement, is a financial tool for studying the key changes and trends in financial position and operational result of a company.