Questions for Chapter-Analysis of financial statements (Book II) 

MCQ-Based Questions for CUET Accountancy chapter-Analysis of financial statements (Book II) 

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Practice Questions for CUET Accountancy chapter-Analysis of financial statements (Book II) SET-1

Accounts - MCQ on Analysis of financial statements (Book II)

Class XII

Q.1. The process of critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm is called

a. Position statement.

b. Income statement.

c. Financial analysis.

d. Financial feedback.

Answer:

(c)

Explanation: Critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm is called financial analysis.

Q.2. The item, which forms part of capital employed but not of shareholders funds, is

a. debentures.

b. equity share capital.

c. preference share capital.

d. fictitious assets.

Answer:

(a)

Explanation: Debentures are part of capital employed but they are excluded from shareholders funds.

Q.3. Financial analysis includes both analysis and

a. interpretation.

b. comparative statements.

c. common size statements.

d. final decision.

Answer:

(a)

Explanation: Financial analysis includes both analysis and interpretation.

Q.4. Non-operating expenses include

a. selling expenses.

b. cash discount to customers.

c. office expenses.

d. loss on sale of fixed assets.

Answer:

d

Explanation: Loss on sale of fixed assets is a non-operating expense.

Q.5. Analysis of financial statement means

a. making data complex.

b. simplification of data.

c. creation of new data.

d. preparing balance sheet.

Answer:

(b)

Explanation: Analysis of financial statement means simplification of data.

Q.6. Comparative analysis is also known as

a. vertical analysis.

b. ratio analysis.

c. dual analysis.

d. horizontal analysis.

Answer:

(d)

Explanation: Comparative analysis is also known as horizontal analysis.

Q.7. The following information is given for two years

Particulars	2007	2008
Sales	1,00,000	50,000

The percentage change in sales is

a. 100%.

b. 200%.

c. 50%.

d. 25%.

Answer:

(c)

Explanation: Change in sales/ sale of base year x 100.

50,000/1,00,000 x 100 = 50%

Q.8. The analysis of actual movement of money inflow and outflow in an organisation is called

a. vertical analysis.

b. ratio analysis.

c. cash flow.

d. current assets.

Answer:

(c)

Explanation: The analysis of actual movement of money inflow and outflow in an organisation is called cash flow.

Q.9. The following information is available of a company:

Details	Amount (Rs)
Gross Sales	12,50,000
Sales return	50,000
Cost of goods sold	8,00,000

The Gross Profit of the company will be

a. Rs. 8,00,000.

b. Rs. 5,00,000.

c. Rs. 4,50,000.

d. Rs. 4,00,000.

Answer:

(d)

Explanation: 12,50,000 - 50,000 - 8,00,000.

Q.10. The statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods is called

a. comparative statements.

b. security analysis.

c. debt analysis.

d. common size statement.

Answer:

(a)

Explanation: The statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods is called comparative statements.

Q.11. Balance sheet provides information about financial position of the enterprise

a. for the year ending.

b. at a point of time.

c. over a period of time.

d. for a period of time.

Answer:

(b)

Explanation: Balance sheet provides information at a point of time.

Q.12. When each item is expressed as a percentage of some common base, it is called as

a. comparative statements.

b. trend analysis.

c. balance sheet.

d. common size statement.

Answer:

(d)

Explanation: In common size statement each item is expressed as a percentage of some common base.

Q.13. The internal users of financial statements are

a. trade creditors.

b. lenders.

c. management people.

d. researchers.

Answer:

(c)

Explanation: Internal users of financial statements are management people.

Q.14. A trade creditor through the analysis of financial statements appraises

a. urgent ability of the company to meet its obligations.

b. business conditions.

c. future earnings.

d. financial position.

Answer:

(a)

Explanation: A trade creditor through the analysis of financial statements appraises urgent ability of the company to meet its obligations.

Q.15. The following information is given:

Details	Amount (Rs)
Gross Profit	15,00,000
Operating expenses	2,00,000
Administrative expenses	1,00,000
Sales expenses	4,00,000

Income from operation will be

a. Rs. 15,00,000.

b. Rs. 13,00,000.

c. Rs. 12,00,000.

d. Rs. 8,00,000.

Answer:

d

Explanation: 15,00,000 - 2,00,000 - 1,00,000 - 4,00,000.

Q.16. Non-operating expenses include

a. provision for bad debts.

b. fictitious assets written off.

c. bad debts.

d. administrative expenses.

Answer:

b

Explanation: Fictitious assets written off is a non-operating expense.

Q.17. Financial statements for a number of years are reviewed and analysed in

a. horizontal analysis.

b. vertical analysis.

c. window dressing.

d. common size analysis.

Answer:

(a)

Explanation: Financial statements for a number of years are reviewed and analysed in horizontal analysis.

Q.18. When financial statements for a single year are analyzed, then the analysis is called as

a. horizontal analysis.

b. vertical analysis.

c. window dressing.

d. dynamic analysis.

Answer:

(b)

Explanation: When financial statements for a single year are analysed, the analysis is called vertical analysis.

Q.19. The following information is given to you:

Details
Sales	Rs 2,00,000
Cost of goods sold	70% of sales
Indirect expenses	10% of gross profit
Rate of tax	50%

The amount of tax will be

a. Rs. 1,00,000.

b. Rs. 70,000.

c. Rs. 54,000.

d. Rs. 27,000.

Answer:

(d)

Explanation: Gross profit = 2,00,000 – 1,40,000

Net profit = 60,000 – 6,000

50% of net profits = 54,000 x 50/100

Q.20. In common size profit and loss account all the figures are expressed in terms of

a. sales.

b. total of balance sheet.

c. capital employed.

d. cost of sales.

Answer:

(b)

Explanation: In common size profit and loss account all the figures are expressed in terms of sales.

Q.21. Long-term financial position of a company is checked by

a. debtors.

b. creditors.

c. financing bankers.

d. government.

Answer:

(c)

Explanation: Financing banker checks long-term financial position of the company.

Q.22. The process of identifying the financial strengths and weaknesses of the enterprise by establishing relationship between the items of income statement and balance sheet is called as

a. cash flow statement.

b. common size analysis.

c. comparative analysis.

d. financial analysis.

Answer:

(d)

Explanation: The process of identifying the financial strengths and weaknesses of the enterprise by establishing relationship between the items of income statement and balance sheet is called financial analysis.

Q.23. Financial statements help investors in assessing

a. longevity and earning capacity.

b. short term financial position.

c. legal provisions.

d. possible wages.

Answer:

a

Explanation: Financial statements help investors in assessing longevity and earning capacity of the business.

Q.24. Operating expenses include

a. loss on sale of fixed assets.

b. interest on long-term debts.

c. bad debts.

d. intangible assets written off.

Answer:

c

Explanation: Operating expenses include bad debts.

Q.25. Safety of their investment is judged by

a. creditors.

b. shareholders.

c. debtors.

d. management.

Answer:

b

Explanation: Shareholders have invested their money into the business and they judge safety of investment.

Practice Questions for CUET Accountancy chapter-Analysis of financial statements (Book II) SET-2

Q.26. The sales for two years are Rs. 2,00,000 and Rs. 2,50,000, the cost of goods sold for the same periods are Rs. 1,00,000 and Rs. 1,10,000 respectively. The percentage change in gross profit will be

a. 40%.

b. 25%.

c. 20%.

d. 10%.

Answer:

(a)

Explanation: GP = sales – cost of goods sold. G P will be Rs. 1,00,000 and Rs. 1,40,000 respectively % Change = change / base year x 100.

Q.27. The common base for comparison is provided by

a. balance sheet.

b. comparative statements.

c. dynamic analysis.

d. common size statements.

Answer:

(d)

Explanation: The common size statements provide the common base for comparison.

Q.28. In common size balance sheet all the figures are expressed in terms of

a. sales.

b. total of balance sheet.

c. capital employed.

d. share capital.

Answer:

(b)

Explanation: In common size balance sheet all the figures are expressed in terms of total of balance sheet.

Q.29. Short-term financial position of the company is checked by

a. investors.

b. owners.

c. creditors.

d. debtors.

Answer:

(c)

Explanation: Creditors are interested in short-term financial position of the company.

Q.30. The form of common size balance sheet consists of four columns, the first column contains

a. previous year’s figures.

b. current year’s figures.

c. % of previous year.

d. % of current year.

Answer:

(a)

Explanation: The first column of common size balance sheet contains previous year’s figures.

Q.31. Window dressing of financial statements refers to

a. presentation to shareholders.

b. format of balance sheet.

c. dynamic analysis.

d. cover up bad financial position.

Answer:

(d)

Explanation: Window dressing of financial statements refers to cover up bad financial position.

Q.32. Common size analysis is also known as

a. vertical analysis.

b. ratio analysis.

c. dual analysis.

d. horizontal analysis.

Answer:

(a)

Explanation: Common size analysis is also known as vertical analysis.

Q.33. The balance sheet is a sheet, which discloses the names of all such accounts, which show

a. credit balance only.

b. debit balance only.

c. balances.

d. nil balance.

Answer:

(c)

Explanation: The balance sheet is a sheet, which discloses the names of all such accounts, which show balances.

Q.34. Capital employed includes

a. all assets.

b. all liabilities.

c. shareholders funds.

d. fictitious assets.

Answer:

(c)

Explanation: Capital employed is a broader term and it includes shareholders fund.

Q.35. For analyzing trend of data shown in the financial statements it is necessary to have statements for

a. one year.

b. many companies.

c. cash flow.

d. a number of years.

Answer:

d

Explanation: For analyzing trend of data shown in the financial statements it is necessary to have statements for a number of years.

Q.36. All lenders which provide long term debt to the industries such as Banks, Insurance companies, UTI etc. are interested to know the profit earning capacity of the business and its

a. short term solvency.

b. long-term solvency.

c. past records.

d. present financial strength.

Answer:

(b)

Explanation: Lenders are also interested in long-term solvency of the firm.

Q.37. The item deducted from capital employed is

a. reserves and surpluses.

b. goodwill.

c. fictitious assets.

d. debentures.

Answer:

c

Explanation: Fictitious assets are deducted from capital employed.

Q.38. Operating expenses include

a. selling and distribution expenses.

b. loss on sale of fixed assets.

c. interest on long-term debts.

d. rent received.

Answer:

a

Explanation: Operating expenses include selling and distribution expenses.

Q.39. An annual report is issued by a company to its

a. directors.

b. auditors.

c. management.

d. shareholders.

Answer:

(d)

Explanation: A company issues an annual report to its shareholders.

Q.40. If, sales are Rs. 12,00,000; gross profit Rs. 8,00,000, then the cost of goods sold, will be

a. Rs. 20,00,000.

b. Rs. 12,00,000.

c. Rs. 8,00,000.

d. Rs. 4,00,000.

Answer:

(d)

Explanation: 12,00,000 - 8,00,000= 4,00,000.

Practice Questions for CUET Accountancy chapter-Analysis of financial statements (Book II) SET-3

Q.41. The following information is given:

Gross profit = Rs. 8,00,000.

Operating expenses = Rs. 2,00,000.

Administrative expenses = Rs. 1,00,000.

Sales expenses = Rs. 1,00,000.

Net profit will be

a. Rs. 8,00,000.

b. Rs. 6,00,000.

c. Rs. 7,00,000.

d. Rs. 4,00,000.

Answer:

a

Explanation: 8,00,000- 2,00,000 - 1,00,000 - 1,00,000.

Q.42. Financial statements normally refers to

a. journal, ledger and trial balance.

b. books of accounts.

c. profit and loss account and balance sheet.

d. ratio analysis and cash flow statement.

Answer:

(c)

Explanation: Financial statements normally refer to the profit and loss account and balance sheet. In broader sense it also includes cash flow statement.

Q.43. Shareholders funds include

a. current assets.

b. fixed assets.

c. debentures.

d. preference share capital.

Answer:

(d)

Explanation: Preference share capital is a part of shareholders funds.

Q.44. The item deducted from shareholders funds is

a. reserves and surpluses.

b. goodwill.

c. fictitious assets.

d. accumulated profits.

Answer:

c

Explanation: Fictitious assets are deducted from shareholders funds.

Q.45. Most widely used tool of financial analysis, which uses cash transactions only, is

a. fund flow analysis.

b. cash flow analysis.

c. receipts and payments account.

d. trend analysis.

Answer:

(b)

Explanation: Most widely used tool of financial analysis, which uses cash transactions only, is cash flow analysis.

Q.46. Long-term loans consist of

a. current liabilities.

b. preference share capital.

c. fixed assets.

d. debentures.

Answer:

(d)

Explanation: Debentures are part of long-term loans.

Q.47. The following information is given

Sales Rs. 25,00,000, cost of goods sold is 25% of sales.

The gross profit will be

a. 18,75,000.

b. 12,50,000.

c. 6,25,000.

d. 5,25,000.

Answer:

(a)

Explanation: Gross profit = sales – cost of goods sold.

25,00,000 - 25/100 of Rs. 25,00,000.

Q.48. The following information is given

Sales= Rs. 2,00,000.

Cost of goods sold = 70% of sales.

Indirect expenses = 10% of gross profit.

Rate of tax is 50%.

The amount of net profit will be

a. Rs. 1,00,000.

b. Rs. 70,000.

c. Rs. 54,000.

d. Rs. 27,000.

Answer:

(c)

Explanation: Gross profit = 2,00,000 – 1,40,000

Net profit = 60,000 – 6,000

Q.49. Non-operating incomes include

a. selling and distribution expenses.

b. profit on sale of fixed assets.

c. interest on long-term debts.

d. loss on sale of fixed assets.

Answer:

b

Explanation: Profit on sale of fixed assets is a non-operating income.

Q. 50. The serious limitation of financial statements is that it

a. does not reflect price level changes.

b. can not be used for decision making.

c. has limited use.

d. records cash transactions only.

Answer:

a

Explanation: The serious limitation of financial statements is that it does not reflect price level changes.

Q.51. The following information is given:

Gross profit = Rs. 8,00,000

Operating expenses = Rs. 2,00,000

Administrative expenses = Rs. 1,00,000

Sales expenses = Rs. 1,00,000.

The total operating expenses are

a. Rs. 2,00,000.

b. Rs. 3,00,000.

c. Rs. 4,00,000.

d. Rs. 5,00,000.

Answer:

(c)

Explanation: Total operating expenses = 2,00,000 + 1,00,000 + 1,00,000.

Q.52. One example of fictitious assets is

a. goodwill.

b. preliminary expenses.

c. prepaid expenses.

d. investment having low market value.

Answer:

(b)

Explanation: Preliminary expense is an example of fictitious assets.

Q.53. The following information is given for two years

Particulars	2007	2008
Sales	3,00,000	2,00,000

The percentage change in sales is

a. 50%.

b. 33.33%.

c. 25%.

d. 20%.

Answer:

(b)

Explanation: Change in sales/ sale of base year x 100.

1,00,000/3,00,000 x 100 = 33.33%

Q.54. The form of common size balance sheet consists of four columns, the third column contains

a. % of previous year.

b. % of current year.

c. previous year’s figures.

d. current year’s figures.

Answer:

(a)

Explanation: The third column of common size balance sheet contains % of previous year.

Q.55. Fixed assets plus investments plus working capital is the formula for calculation of

a. long term debts.

b. shareholders funds.

c. total liabilities.

d. capital employed.

Answer:

(d)

Explanation: Capital employed is equal to fixed assets plus investments plus working capital.

Q.56. Net profit = Gross profit – cost of goods sold –

a. indirect expenses.

b. direct expenses.

c. non-operating expenses.

d. operating expenses.

Answer:

(a)

Explanation: Net profit = Gross profit – cost of goods sold – indirect expenses.

Q.57. A process wherein the investor comes to know whether the firm is fulfilling his expectations with regard to payment of dividend, capital appreciation and security of money is called

a. credit analysis.

b. security analysis.

c. debt analysis.

d. dividend decision.

Answer:

(b)

Explanation: Security analysis is a process wherein the investor comes to know whether the firm is fulfilling his expectations with regard to payment of dividend, capital appreciation and security of money.

Q.58. Following information is given to you

Net sales Rs. 20,00,000; cost of goods sold Rs. 7,50,000 and direct expenses Rs. 2,50,000. The gross profit is

a. Rs. 13,50,000.

b. Rs. 12,50,000.

c. Rs. 10,00,000.

d. Rs. 7,50,000.

Answer:

(b)

Explanation: Gross profit = sales – cost of goods sold.

Direct expenses are already included in cost of goods sold.

Q.59. Cost of goods sold is related to

a. profit and loss account.

b. trading account.

c. balance sheet.

d. comparative balance sheet.

Answer:

(b)

Explanation: Trading account consists of all the items of cost of goods sold.

Q.60. Cost of goods sold = opening stock + purchases –

a. direct expenses.

b. indirect expenses.

c. sales.

d. closing stock.

Answer:

(d)

Explanation: The formula for cost of goods sold = opening stock + purchases – closing stock.

Q.61. Sales for two years are Rs. 4,00,000 and Rs. 5,00,000. The cost of goods sold for the same periods are Rs. 2,00,000 and Rs. 2,25,000 respectively. The percentage change in gross profit will be

a. 75%.

b. 37.5%.

c. 25%.

d. 22.5%.

Answer:

(b)

Explanation: GP = sales – cost of goods sold.

G P will be Rs. 2,00,000 and Rs. 2,75,000 respectively

% Change = change / base year x 100.

Q.62. Common size statements may be prepared for

a. balance sheet.

b. income statement.

c. balance sheet and income statement.

d. cash flow statement.

Answer:

(c)

Explanation: Common size statements may be prepared for balance sheet and income statement.

Q.63. Capital employed = Fixed assets +

a. current assets.

b. current liabilities.

c. fictitious assets.

d. working capital.

Answer:

d

Explanation: Capital employed = Fixed assets + working capital.

Q.64. A common size statement is a statement in, which the figure of net sales is assumed to be equal to

a. 1.

b. 10.

c. 100.

d. 1000.

Answer:

(c)

Explanation: A common size statement is a statement in which the figure of net sales is assumed to be equal to 100.

Q.65. Non-operating expenses include

a. selling expenses.

b. cash discount to customers.

c. bad debts.

d. interest on long-term debts.

Answer:

d

Explanation: Interest on long-term debts is a non-operating expense.

Q.66. Interpretation without analysis becomes

a. easy.

b. difficult.

c. effective.

d. useful.

Answer:

(b)

Explanation: Interpretation without analysis becomes difficult or impossible.

Q.67. The end product of accounting process is called

a. trial balance.

b. financial statements.

c. ratio analysis and cash flow statement.

d. balance sheet.

Answer:

(b)

Explanation: The accounting process starts with journal and ends with the preparation of financial statements i.e. profit & loss account and balance sheet.

Q.68. The statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods is called as

a. comparative statements.

b. security analysis.

c. debt analysis.

d. common size statement.

Answer:

(a)

Explanation: The statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods is called as comparative statements.

Q.69. The following information is given

Sales Rs. 25,00,000, gross profit is 25 % of cost of goods sold.

The gross profit will be

a. 18,75,000.

b. 12,50,000.

c. 5,00,000.

d. 5,25,000.

Answer:

(c)

Explanation: 25/125 of Rs. 25,00,000.

Q.70. The form of common size balance sheet consists of four columns, the second column contains

a. previous year’s figures.

b. % of previous year.

c. % of current year.

d. current year’s figures.

Answer:

(d)

Explanation: The second column of common size balance sheet contains current year’s figures.

Q.71. Current liabilities are paid out of

a. debentures.

b. shares.

c. current assets.

d. long term loans.

Answer:

c

Explanation: Current liabilities are paid out of current assets.

Q.72. Rate of income tax is calculated on

a. sales.

b. net profit.

c. gross profit.

d. operating profit.

Answer:

b

Explanation: Income tax is always calculated on net profit.