Test: Analysis of Financial Statements- Assertion & Reason Type Questions

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Test: Analysis of Financial Statements- Assertion & Reason Type Questions - Question 1

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
Assertion (A): Comparative Balance Sheet provides information regarding progress of the business firm.
Reason (R): The Comparative Balance Sheet shows increase and decrease in absolute terms as well as in percentage in various assets, liabilities and capital.

A. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
B. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
C. Assertion (A) is true, but Reason (R) is false .
D. Assertion (A) is false, but Reason (R) is true.

Detailed Solution for Test: Analysis of Financial Statements- Assertion & Reason Type Questions - Question 1 Comparative statements compare financial data of two points of time and help in deriving meaningful conclusions regarding the changes in financial position and operating results.

Test: Analysis of Financial Statements- Assertion & Reason Type Questions - Question 2

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
Assertion (A): The analysis of financial statements does not disclose the current worth of the business.
Reason (R): Financial statements are prepared on cost principles.

A. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (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 true, but Reason (R) is false .
D. Assertion (A) is false, but Reason (R) is true.

Detailed Solution for Test: Analysis of Financial Statements- Assertion & Reason Type Questions - Question 2 As the financial statements are prepared on the cost principle, its analysis does not disclose the current financial position of the company.

Test: Analysis of Financial Statements- Assertion & Reason Type Questions - Question 3

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
Assertion (A): Financial statements help in drawing out meaningful conclusions.
Reason (R): Financial Statements Analysis presents financial data in a simplified and understandable form.

A. Assertion (A) is false, but Reason (R) is true.
B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
C. Assertion (A) is true, but Reason (R) is false .
D. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).

Detailed Solution for Test: Analysis of Financial Statements- Assertion & Reason Type Questions - Question 3

Financial analysis determines a company's health and stability, providing an understanding of how the company conducts its business. But it is important to know that financial statement analysis has its limitations as well.
Financial statement analysis is the process of analyzing a company's financial statements for decision-making purposes. External stakeholders use it to understand the overall health of an organization as well as to evaluate financial performance and business value.

Test: Analysis of Financial Statements- Assertion & Reason Type Questions - Question 4

Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Assertion (A): Comparative statements help in deriving meaningful conclusions regarding the changes in financial position and operating results.

Reason (R): Comparative statements compare financial data of two points of time.

A. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (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 true, but Reason (R) is false .
D. Assertion (A) is false, but Reason (R) is true.

Detailed Solution for Test: Analysis of Financial Statements- Assertion & Reason Type Questions - Question 4 Statements showing financial data for two or more years, placed side by side to facilitate comparison are called Comparative Financial Statements.

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