FINANCIAL STATEMENT ANALYSIS | UNIT 2 | B. Com 5th Sem MANAGMENT ACCOUNTING Question Answer | B. Com 5th Sem English Medium Question Answer Solution |

UNIT-2

 FINANCIAL STATEMENT ANALYSIS 

Review Questions 

OBJECTIVE TYPE AND MULTIPLE CHOICE QUESTIONS 

1. From the following alternatives, write serially the correct answer along with its serial number against each bit:

 (i) On the basis of material used, financial analysis can be classified as: 

(a) External and Internal Analysis 

(b) Horizontal and Vertical Analysis 

(c) Static Analysis and Dynamic Analysis 

(d) None of these

Answer:

 (ii) Horizontal analysis is also known as: 

(a) Dynamic Analysis             (b) Static Analysis

 (c) External Analysis             (d) Internal Analysis

Answer:

(iii) Comparative financial statement is a tool of 

(a) Ratio Analysis           (b) Financial Analysis

(c) Trend Analysis         (d) Fund Flow Analysis

Answer:

(iv) Financial statement analysis based upon:

 (a) Monetary information 

(b) Non-monetary information 

(c) Both monetary and non-monetary information 

(d) None of these. 

[Ans . (1) (a), (ii) (a), (iii) (b), (iv) (a)] 

2. State whether each of the following statements is True or False: 

(i) The term financial analysis includes both ' analysis and interpretation 

(ii) On the basis of modus operandi , financial analysis can be classified as external analysis and internal analysis. 

(iii) Vertical analysis refers to the comparison of financial data of a company for several years. 

(iv) Horizontal analysis is also known as 'static analysis. 

(v) Comparative statements are the form of horizontal analysis. 

(vi) Common - size statements and financial ratios are the two tools employed in vertical analysis.

 [Ans. (i) True (ii) False; (iii) False; (iv) False; (v) True; (vi) True.] 

3. From the following alternatives, write serially the correct answer alongwith its serial number against each bit:

 (a) One of the techniques of financial statement analysis is:

(i) Profit and Loss Account        (ii) Comparative Statement

(iii) Balance Sheet                     (iv) Profit and Loss Appropriation Account

Answer:

 (b) One of the techniques of financial statement analysis is : 

(i) Balance Sheet         (ii) Comparative Balance Sheet

(iii) Profit and Loss Account         (iv) Profit and Loss Appropriation 

Answer: 

(c) One of the following which is not a technique of financial statement analysis is:

 (i) Common-size statement      (ii) Comparative Statement

(iii) Comparative statement          (iv) Position statement 

Answer:

(d) Horizontal analysis refers to the comparison of:

(i) Financial data of a company for several years
(ii) Financial statements of one accounting period

 (iii) Both (i) and (ii)

 (iv) None of the (i) and (i) 

[Ans . (a ) (ii): ( b ): c ) (iv): (d) (i)] 

B. SHORT ANSWER TYPE QUESTIONS 

1. What is financial analysis'?

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2. What are the types of financial analysis? 

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3. Compare horizontal and vertical analysis.

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4. What is the procedure of analysis and interpretation of financial statements? 

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5. Write a brief note on comparative statements. 

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6. What is trend analysis?

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 7. Explain common-size statements. 

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8. What are the limitations of financial statement analysis? 

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9. What is meant by intra - firm comparison?

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 10. Give a specimen of Comparative Income Statement.

Answer:

11.Explain the meaning of the following terms within 2-3 sentences each:

 (a) Horizontal analysis                 (b) Common - size statement

 (d) Financial analysis                   (c) Cross sectional analysis 

Answer:

12. Write the difference between traditional approaches and modern approaches of financial statement analysis. 

Answer:

13. What is common size statement analysis?

Answer:

 C. ESSAY TYPE QUESTIONS 

1. What do you understand by the analysis and interpretation of financial statements ? Discuss their utility and significance to the management and others who are interested in the business. 

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2. What are the different methods used for the analysis and interpretation of financial statements. 

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3. What is common-size balance sheet and income statement? Explain the technique of preparing the common-size balance sheet. 

Answer:

4. What is the importance to management of comparative statements? Illustrate your answer with particular reference to Comparative Revenue statements and state briefly how these statements are prepared.

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 5. Explain the usefulness of trend percentages in interpretation of financial performance of a company.

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 6. "Analysis without interpretation is meaningless and interpretation without analysis is impossible ." Discuss. 

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7. State the different types of financial analysis and discuss the limitations of analysis and interpretation of financial statements. 

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8. "Analysis without interpretation is meaningless and interpretation without analysis is misleading ." Elucidate the statement. Explain the significance of financial statement analysis.

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 9. (a) Write short notes on techniques of financial statement analysis. 

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    (b) Distinguish between traditional approach and modern approach to financial statement analysis.

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 10. Explain the methods used in financial statement analysis.

Answer:

Type-Bharat Kalita