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Analysis of Financial Statements Class 12 MCQs Questions with Answers
Multiple Choice Questions (MCQs):
Question 1.
Which of the following is not recognized as tool for the analysis of financial statements?
(a) Cash Flow Statement
(b) Funds Flow Statement
(c) Trend Analysis
(d) Statement showing distribution of dividends
Answer
Answer: (d) Statement showing distribution of dividends
Question 2.
Which of the following is the objective of comparative statement?
(a) To making data simple
(b) To make data comparative
(c) To help in forcasting
(d) To detect financial irregularities
Answer
Answer: (d) To detect financial irregularities
Question 3.
Which of the following is not a tool of financial statement analysis?
(a) Cash Flow Statement
(b) Statement showing distribution of dividend
(c) Ratio Analysis
(d) Comparative Financial Statements
Answer
Answer: (b) Statement showing distribution of dividend
Question 4.
Which of the following objectives is not met by comparative statement of Profit and Loss?
(a) It helps to compare the figures of atlest two years
(b) It helps to assess absolute changes
(c) It helps to know the changes in the financial position
(d) It helps to know the percent changes in the statement of Profit and Loss
Answer
Answer: (c) It helps to know the changes in the financial position
Question 5.
Financial analysis can be done with which of the following tool?
(a) Ratio Analysis
(b) Cash Flow Statement
(c) Comparative Statements
(d) All of the above
Answer
Answer: (d) All of the above
Question 6.
Analysis of financial statements for two or more years is known as
(a) Horizontal analysis
(b) External analysis
(c) Vertical analysis
(d) Internal analysis
Answer
Answer: (a) Horizontal analysis
Question 7.
Which of the following is not an objective of financial statement analysis?
(a) Efficiency of the Management
(b) Price Level Changes
(c) Profitability of the Enterprise
(d) Solvency of the Enterprise
Answer
Answer: (b) Price Level Changes
Question 8.
Who of the following has no financial interest in the analysis of financial statements?
(a) Management
(b) Debtor
(c) Creditor
(d) Investor
Answer
Answer: (b) Debtor
Question 9.
Who has the interest in long-term solvency position of the firm?
(a) Creditors
(b) Bankers providing overdraft facilities
(c) Financial Institutions
(d) Short-term money lenders
Answer
Answer: (c) Financial Institutions
Question 10.
Which of the following is not a limitation in the analysis of financial statements?
(a) Ignores Price Level Changes
(b) Window Dressing
(c) Financial performance of the firm
(d) Bias of the Analyst
Answer
Answer: (c) Financial performance of the firm
State whether the following statements are true or false:
Question 11.
Comparative financial statements reflect changes in the items in absolute amount only.
Answer
Answer: False
Question 12.
Comparative Financial Statements are prepared at the end a financial year.
Answer
Answer: True
Question 13.
Shareholders are interested to know short-term financial position of an enterprise.
Answer
Answer: False
Question 14.
Compression of financial statements of two or more years of the same firm is known as inter-firm comparison.
Answer
Answer: False
Question 15.
Manipulation of accounts is known as window dressing.
Answer
Answer: True
Question 16.
Both quantitative and well as qualitative aspects are ignored in the analysis of financial statements.
Answer
Answer: False
Question 17.
Financial statements do not reflect price level changes.
Answer
Answer: True
Question 18.
Statement showing the pay roll in a company is one of the tool for the analysis of financial statements.
Answer
Answer: False
Question 19.
Comparative financial statements represent the date for two or more years.
Answer
Answer: True
Question 20.
Comparative Statement of Profit and Loss reflects changes in the financial position of an enterprise.
Answer
Answer: False
Fill in the blanks with correct word:
Question 21.
Financial statement analysis is the post-mortem of the business _________.
Answer
Answer: transactions
Question 22.
Comparative financial statements mean a comparative study of _______ of an enterprise for two or more years.
Answer
Answer: Financial Statements
Question 23.
_________ analysis is conducted by those who do not have access to the detailed records of an enterprise.
Answer
Answer: External
Question 24.
________ refers to the comparison of financial statements within an enterprise.
Answer
Answer: Intra-firm comparison
Question 25.
Preparation of financial statements are ________ in nature.
Answer
Answer: Historical
Question 26.
When the financial statements of two or more enterprises are compared, it is known as __________.
Answer
Answer: Inter-firm comparison
Question 27.
In ______ statement, components of balance sheets are compared with the total of balance sheet.
Answer
Answer: Common size balance sheet
Question 28.
Absolute changes in the comparative financial statements are found by comparing current year figure with _____ year’s figure.
Answer
Answer: Previous
Question 29.
The items of comparative income statement are converted into percentage by taking _______ as base.
Answer
Answer: Revenue from Operations
Question 30.
Cash Flow Statement reflects _____ and ______ of cash and cash equivalents during an accounting year.
Answer
Answer: Inflows, outflows
One word Questions:
Question 31.
State any one limitation of Financial Statement Analysis. (CBSE Compartment Delhi 2014, 2015)
Answer
Answer: Historical Analysis of financial Statement.
Question 32.
State any one objective of analysis of financial statements. (CBSE Compartment Delhi 2014)
Answer
Answer: To measure earning capacity of business.
Question 33.
State the type of Financial Statement Analysis in which figures of the same items of various years are compared.
Answer
Answer: Horizontal analysis.
Question 34.
Which type of financial statement analysis helps a company to establish the relationship between different items financial statement of a same year?
Answer
Answer: Vertical analysis.
Question 35.
“One of the objectives of Financial Statement Analysis is to assess solvency of business”. What does the term ‘solvency’ mean here ?
Answer
Answer: Solvency means ability to pay the debts.
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