Class 12 Analysis of Financial Statements Mock Test (CBSE)

Topics in Analysis of Financial Statements

• Meaning of analysis of financial statements
• Significance of analysis of financial statements
• Objectives of analysis of financial statements
• Tools of analysis of financial statements
• Comparative statements
• Common size statements
• Limitations of financial analysis

Analysis of Financial Statements practice questions with answers

1. Q1Multiple choice·1 mark
   In a Common Size Balance Sheet, each individual asset is expressed as a percentage of:

   1. (a)Total Assets
   2. (b)Shareholders' Funds
   3. (c)Total Revenue from Operations
   4. (d)Non-Current Liabilities
   Show answer and step marks

   1. Correct option: (a) Total Assets+1

   Answer: (a)
2. Q2Multiple choice·1 mark
   Which of the following is a limitation of financial analysis?

   1. (a)It simplifies complex accounting data.
   2. (b)It helps in identifying the trend of financial performance.
   3. (c)It facilitates the assessment of earning capacity.
   4. (d)It ignores qualitative aspects such as management efficiency and industrial relations.
   Show answer and step marks

   1. Correct option: (d) It ignores qualitative aspects such as management efficiency and industrial relations.+1

   Answer: (d)
3. Q3Short answer·3 marks
   State any three points highlighting the significance of the analysis of financial statements to various stakeholders.
   Show answer and step marks

   1. First point, any one of: management judges profitability and operating efficiency and plans control; investors and shareholders assess earning capacity and safety of investment; creditors, banks and lenders assess short-term liquidity and long-term solvency; employees assess the firm's ability to pay wages, bonus and job security; government uses it for taxation, regulation and policy; management uses the trends shown for forecasting and budgeting; or any other valid point.+1
   2. Second point, a different one from the same list.+1
   3. Third point, a different one from the same list.+1

   Answer: Any three of: management (profitability, efficiency, control); investors (earning capacity, safety of investment); creditors and lenders (liquidity and solvency); employees (wages, bonus, job security); government (taxation, regulation); management (trends for forecasting and budgeting).

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