Financial Statements

Analysis

Medium

Which of the following combination of statements are NOT true-

(A) Financial analysis is used only by the creditors.

(B) Comparative statements are the form of vertical analysis

(C) The financial statements of a business enterprise include cash flow statement.

(D) Ratio analysis establishes relationship between two financial statements.

Choose the correct answer from the options given below:

(B) and (D) only

(A) and (B) only

(A) and (D) only

✅ Correct Option: 2

Let me evaluate each statement to identify which are NOT true:

Statement (A): Financial analysis is used only by the creditors

This is NOT true. Financial analysis is used by multiple stakeholders including:

Management (for decision making)
Investors (for investment decisions)
Creditors (for lending decisions)
Employees, Government, Researchers, etc.

It is not limited to creditors alone.

Statement (B): Comparative statements are the form of vertical analysis

This is NOT true. Comparative statements are a form of horizontal analysis, not vertical analysis.

Horizontal analysis compares financial data across different time periods (year-to-year comparison)
Vertical analysis expresses each item as a percentage of a base figure within the same period (like common-size statements)

Comparative statements show absolute figures and changes across periods, making them horizontal in nature.

Statement (C): The financial statements of a business enterprise include cash flow statement

This is true. A complete set of financial statements includes Statement of Profit and Loss, Balance Sheet, Cash Flow Statement, Statement of Changes in Equity, and Notes to Accounts.

Statement (D): Ratio analysis establishes relationship between two financial statements

This is technically true (though the wording could be better). Ratio analysis establishes relationships between accounting figures that may come from one or more financial statements. For example, Return on Investment uses profit (from Statement of Profit and Loss) and capital employed (from Balance Sheet).

Statements that are NOT true: (A) and (B)

Answer: Option 2

2024

Which one of the following are correct in connection with the Common Size Statement?

2026: 21 May Shift 2

From the following information, ascertain the percentage change in profit after tax

Particulars	2024-25	2025-26
Profit before tax	7,50,000	15,60,000
Income Tax	30%	40%

2026: 12 May Shift 1

Match List-I with List-II

List-I	List-II
(A) Comparative Statement	(I) Expressing all items as % of a common base.
(B) Common Size Statement	(II) Determining direction of movement over several years
(C) Ratio Analysis	(III) Evaluate relationship among items of a balance sheet and a statement of profit and loss of a firm.
(D) Trend Analysis	(IV) Shows changes in items over two or more periods

Choose the correct answer from the options given below:

2025: 24 May Shift 1

Arrange the following outcomes in the correct order for calculating profit and loss in the common-size statement

(A) Net Profit

(B) Non-Operating Income

(D) Profit after tax

Choose the correct answer from the options given below:

2025: 29 May Shift 2

Net Profit after tax Rs. 60,000; 10% Long-term debt Rs.10,00,000; and Tax rate 40%. The net profit before interest and tax is:

2022: 30 Aug Shift 2

Identify the correct sequence to find out profit after tax while preparing comparative income statement

A. Deduct expenses

B. Find out total revenue by adding other incomes to revenue from operations

C. Find out profit after tax

D. Deduct tax

E. Calculate profit before tax

Choose the correct answer from the options given below:

Solution

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