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Monday, November 02, 2020

Financial Statement Analysis Multiple Choice Questions and Answers | Financial Statement Analysis MCQs

MCQs on Financial Statements Analysis

Multiple Choice Questions and Answers

A. Choose the Correct Answer:

1. Financial statements of a company include:

a)      Balance Sheet.

b)      Profit or Loss Account.

c)       Cash Flow Statements.

d)      All of the above.

2. Most commonly used tools for financial analysis are:

a)      Horizontal Analysis.

b)      Vertical Analysis.

c)       Ratio Analysis.

d)      All of the above.

3. Balance Sheet shows:

a)      Financial position of a Company.

b)      Profit or Loss of a Company.

c)       Cash flow of a Company.

d)      None of the above.

4. Annual Report is issued by a company to its:

a)      Directors.

b)      Auditors.

c)       Shareholders.

d)      Management.

5. Balance Sheet provides information about the financial position of the enterprise

a)      At a point of time.

b)      Over a period of time.

c)       For a period of time.

d)      None of the above.

6. Which section of the Companies Act requires that Balance Sheet is to be prepared in the prescribed form?

a)      Sec 125

b)      Sec 126

c)       Sec 127

d)      Sec 129.

7. Dividend is usually paid on:

a)      Authorised capital

b)      Issued share capital

c)       Paid up share capital

d)      Called up share capital

8. Balance Sheet shows:

a)      Operating efficiency

b)      Financial position

c)       All of the above

d)      None of the above

9. Income statement shows:

a)      Operating efficiency

b)      Financial position

c)       All of the above

d)      None of the above

10. Which of the following is prepared on a particular date?

a)      Trading account

b)      Profit & loss account

c)       Balance sheet

d)      All of the above

B. State whether the following statements are true or false.

1.       Financial statements are the end products of accounting process.                    True

2.       Financial statements are primarily directed towards the need of owners.                      True

3.       Facts & figures presented in financial statements may be affected by may be personal bias.  False

4.       Recorded facts are based on replacement cost.                         False

5.       Going concerns concept assumes that the enterprise continues for a long period of time.     True

6.       Financial statements provide a summary of accounts.                             False

7.       Financial statements are based on recorded facts.                   True

8.       Patent is an intangible asset.              True

9.       Financial Statements are prepared on historical cost.                              True

10.   Balance Sheet is a statement containing all the ledger balances contained in the ledger.                        False

11.   The term financial statement analysis includes only analysis and does not include interpretations.    False

12.   The term “Interpretation” means explaining the meaning & significance of data.                       True

13.   The term “Analysis” means simplification of financial data by proper clarification of the data.               True

14.   Comparative Statements are the form of Horizontal Analysis.                             True

15.   Common size statements are a tool in vertical analysis.                                          True

16.   In common size statement, every item is expresses as a percentage of some common base.              True

17.   Trend Analysis determines the direction upwards or downward.                       True

18.   Financial analysis provides an insight into the structure of financial statements.                          True

19.   Financial analysis is used only by the creditors.                                           False

20.   Financial statements accomplish only external reporting.      False, Both Internal and External reporting

21.   Current ratio is also known as liquid ratio.                                     False, Working Capital Ratio

22.   IFRS-4 is associated with insurance contracts.                                             True

23.   Financial statement analysis is an important means of assessing past performance and planning future performance. True

24.   The new name of standards issued the IASB is international financial reporting standards (IFRS).   True

25.   Higher the price earnings ratio, better it is, as it indicates growth of the company.                     True

26.   Financial statements disclose only monetary facts.                   True

27.   The figures shown in financial statements are on historical cost basis.                             True

28.   Current Ratio is calculated to compare current assets and fixed assets.           False, Current Assets/Current Liabilities

29.   A decrease in Stock Turnover Ratio indicates that business is becoming more efficient.          False

30.   Corporate social responsibility reporting is not mandatory for any business in India.                                 False, The following companies are necessary to constitute a CSR committee: Companies with a net worth of Rs. 500 crores or greater, or Companies with a turnover of Rs. 1000 crores or greater, or Companies with a net profit of Rs. 5 crores or greater.

31.   Financial statements reflect the recorded facts.                        True

32.   The new name of Accounting Standards issued by IASB is International Financial Reporting Standards (IFRS).   True

33.   Current Ratio indicates short-term debt paying ability of a firm.         True

34.   Analysis of financial statements ignores the issue of price level changes.                       True

35.   Capital gearing is a term used to express the relationship between ordinary share capital and fixed interest bearing securities of a company.                               True

36.   The IRDA was incorporated as statutory body in April 1999.                  False, April 2000

37.   Financial statements are Summarized report of recorded facts.                         True

38.   Financial statements include Profit & Loss statement, Balance Sheet and Cash Flow Statement.  True

39.   The prescribed form of the Balance Sheet for the Companies has been in the Schedule III.   True

40.   IFRS-4 is associated with insurance contracts.                             True

41.   Corporate social responsibility reporting is not mandatory for any business in India.              False

42.   Corporate financial reporting in fact is an effective communication of accounting information between the management and the user groups of the financial statements.                                 True

43.   The new name for standard issued by the FASB is International Financial Reporting Standards (IFRS).

44.   The IRDA was incorporated as a statutory body in April 2000.                              True

45.   Financial statements are the end product of financial accounting process.   True

46.   Liquidity ratios indicate the firm’s ability to pay its current liability.                True

47.   Financial statements also disclose such facts which are not recorded in accounting books.   True

48.   Current ratio is also known as acid test ratio.                              False

C. Fill up the blanks with appropriate word/words.

1.       Financial Statements are the basic source of information to interested parties.

2.       Balance Sheet shows the financial position of an enterprise.

3.       Financial Statements are prepared on the basis of Historical value.

4.       A company is required to publish its Financial Statements every year.

5.       Profit & Loss Statement shows the Operating Efficiency of the enterprise.

6.       Balance sheet shows financial Position of an enterprise.

7.       Financial Statements are basis of information to interested parties.

8.       Proposed Dividend is shown in the Balance Sheet of a Company under Current liabilities & sub heading Short term provisions.

9.       Preparation of Profit & Loss Statement is based on Accrual basis.

10.   Shareholders of a company are called Owners.

11.   Financial Facts are recorded at Cost Price.   

12.   Current liabilities are payable within 12 months.

13.   Number of main headings in Equity & Liabilities side of a Company Balance Sheet is four (4).

14.   The number of main headings in the asset side of the balance sheet is two (2).

15.   Preliminary Expenses are shown in the Balance Sheet under Other non-current assets.

16.   Common Size Statement Analysis is known as _____ (Vertical Analysis/Horizontal Analysis).

17.   Long-term solvency of the business is reflected by _____ (Acid Test/Ratio/Debt-equity Ratio/Stock Turnover Ratio).

18.   Accounting Standards Board (ASB) was set up in India in the year _____ (1973/1975/1977)

19.   The basic objective of financial statements is to ____ (provide information/meet legal requirement/show performance of management).

20.   Comparative statement analysis is also known as ____ (vertical analysis/static analysis/horizontal analysis)

21.   The ____ of a company has primary responsibility for the corporation’s external financial reporting functions (management/members/board of directors).

22.   At present ASB of ICAI formulates the AS based on ____ (GAAP/IFRS/IAS).

23.   Ratio of net profit before interest and taxes to sales is ____ ratio (net profit/profit/operative profit)

24.   Financial statement analysis helps to measure ________ (Operating efficiency/Management efficiency/Employee’s efficiency)

25.   GAAP stands for Generally Accepted Accounting Principles.

26.   Financial system are______.(estimates of fact/ recorded facts/anticipated facts.)

27.   Long term solvency ratio is the same as_____(current ratio/acid-test ratio/ debt-equity ratio)

28.   The objective of financial reporting for business enterprises are based on_____(GAAP/the need of conservatism/need of the users of the information).

29.   The institute of chartered Accountant Of India has decided to converge the Indian reporting of corporate India with effect from 1st April 2011. (2011/2012/2013).

30.   Quick assets are current assets less _____ and _____ expenses (stock, prepaid/debtor, outstanding/bank overdraft, prepaid).

31.   The basic objective of financial statements is to _____ (provide accounting information/meet legal requirement/show performance of management).

32.   According to IFRS, banking companies are to adopt _____ (fair value accounting/historical value accounting).

33.   Profit or Loss of Life Insurance business is determined by preparing _____. (Revenue Account/Valuation Balance Sheet).

34.   A Banking Company incorporate in India shall have to transfer a sum equal to 25%. (25%/30%) of profit to a Statutory Reserve.

35.   According to RBI Guidelines a Provision of _____(20%/30%) is required for any advance remains doubtful up to one year.

36.   Compliance of Corporate Governance was made mandatory by SEBI as listing requirement vide _____(Clause 49/Clause 32).

37.   Disclosure in financial statements of banks and similar financial institutions is associated with (IAS-30/IAS-31/IAS-32)

38.   Reporting to corporate governance reflects __________. (Company Management/Earning status/Socio economic status).

39.   The institute of chartered accountants if India (ICAI) has decided to adopt IFRS in India from ____. (2011/2012/2013)

40.   According to IFRS, banking companies are to adopt _______ (Fair value accounting/Historical value accounting).

41.   Disclosures in financial statement of banks and similar financial institutions are associated with IAS 30.(IAS 30/IAS 31/IAS 32)

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