Financial Statement Analysis MCQs | Financial Statements MCQs

Financial Statement Analysis MCQs
Financial Statements MCQs
Multiple Choice Questions and Answers
For Class 12 CBSE/ B.Com / BBA / MBA / CMA / CS / CA examination

In this exclusive page, you will get Financial Statements MCQs and Financial Statement Analysis MCQs for various exams such B.Com, BBA, MBA, CMA, CS and ICAI. These Financial Statements MCQs and Financial Statement Analysis MCQs are also very much helpful for Class 12 CBSE and other state boards including AHSEC.

You can also go through various links given below in the article for Chapter wise Management Accounting MCQs.

Introductio to Financial Statement Analysis

Financial statements are the summarized statements of accounting data produced at the end of accounting process by an enterprise through which accounting information are communicated to the internal and external users.

Financial Statement Analysis is the process of identifying the financial strength and weakness of a firm from the available accounting information and financial statements. The analysis is done by properly establishing the relationship between the items of balance sheet and profit and loss account.

In the words of Myer “Financial Statement analysis is largely a study of relationship among the various financial factors in a business, as disclosed by a single set of statements, and a study of trends of these factors, as shown in a series of statements.” 

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

Ans: d) All of the above.

2. 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.

Ans: a) Financial position of a Company.

3. Profit and loss account shows:

a) Financial position of a Company.

b) Operating efficiency

c) Cash flow of a Company.

d) None of the above.

Ans: b) Operating efficiency

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4. 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.

Ans: a) At a point of time.

5. 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

Ans: d) Sec 129.

6. 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

Ans: c) Balance sheet

7. Which of the following financial statements shows a firm's financial position on a particular date?

a) Cash flow statement

b) Funds flow statement

c) Balance sheet

d) Comparative statements

Ans: c) Balance sheet

8. Which of the following is not an internal user of financial statement?

a) Investors

b) Income tax authorities

c) Trade unions

d) All of the above

Ans: d) All of the above

9. Which of the following is an internal user of financial statement?

a) Owners

b) Employees

c) Managers

d) All of the above

Ans: d) All of the above

10. Which of the following are the external users of financial statements?

a) Government

b) Banks

c) Creditors

d) All of the above

Ans: d) All of the above

11. Which of the following is not an objective of financial statements?

a) To show company’s financial position.

b) To shown company’s operating efficiency.

c) To the effectiveness of management.

d) To determine income tax liability

Ans: d) To determine income tax liability

12. Which of the following is not an objective of financial statements analysis?

a) To assess operating efficiency of the firm.

b) To assess the short term and long term financial position.

c) To make inter-firm comparison.

d) To calculate income tax liability

Ans: d) To calculate income tax liability

13. Which of the following is true about financial statements?

a) financial statement gives a summary of accounts.

b) financial statements can be stated as recorded facts.

c) financial statements are the end products of accounting process.     

d) All of the above

Ans: d) All of the above

14. Most commonly used tools for financial analysis are:

a) Horizontal Analysis.

b) Vertical Analysis.

c) Ratio Analysis.

d) All of the above

Ans: d) All of the above.

15. Annual Report is issued by a company to it’s:

a) Directors.

b) Auditors.

c) Shareholders.

d) Management.

Ans: c) Shareholders.

16. All of the following are true of a financial statement analysis report, except:

a) Financial analysis provides an insight into the structure of financial statements.

b) The term financial statement analysis includes only analysis and does not include interpretations

c) Financial analysis is used only by the creditors.

d) Financial analysis is based on the financial statement.

Ans: c) Financial analysis is used only by the creditors.

17. Dividend is usually paid on:

a) Authorised capital

b) Issued share capital

c) Paid up capital

d) Called up share capital

Ans: c) Paid up share capital

18. The 3ps that is the three objectives of analysis and interpretation of financial statements does not include:

a) Progress

b) Prospect

c) Position

d) Profitability

Ans: d) Profitability

19. Which of the following is not true about vertical analysis?

a) Vertical analysis is also known as static analysis.

b) Vertical analysis is made on the basis of Single set of financial statements.

c) Vertical analysis is made on the basis financial statements of several years.

d) In vertical analysis each element of financial statements are shown as percentage.

Ans: c) Vertical analysis is made on the basis financial statements of several years.

20. Horizontal analysis is done by analyzing:

a) Financial statements of more than one year

b) Financial statements of one year

c) Quarterly financial statements

d) Half yearly financial statements

Ans: a) Financial statements of more than one year

21. In performing a vertical analysis, the base for prepaid expenses is:

a) Total of balance sheet

b) Total of current assets

c) Total of fixed assets

d) Total sales

Ans: a) Total of balance sheet

22. All of the following statements regarding horizontal analysis are true except:

a) Horizontal analysis is also known as dynamic analysis.

b) Comparative statements are the form of horizontal analysis.

c) Horizontal analysis is done by analyzing financial statements of more than one year.

d) Each particular of financial statements are shown as a percentage of total of some common base.

Ans: d) Each particular of financial statements are shown as a percentage of total of some common base.

23. Financial analysis is significant because it:

a) Ignores qualitative aspect

b) Judges financial position and operational efficiency

c) Suffers from the limitations of financial statements

d) It is affected by personal ability and bias of the analysis

Ans: b) Judges financial position and operational efficiency

24. Which one of the following statement is not a tool in financial statement analysis?

a) Ratio analysis

b) Common size statement

c) Comparative statements

d) Marginal costing

Ans: d) Marginal costing

25. Which of these are not the methods of financial statement analysis?

a) Ratio analysis

b) Comparative analysis

c) Trend analysis

d) Capitalization method

Ans: d) Capitalization method

26. Which of the following are techniques, tools or methods of horizontal analysis and interpretation of financial statements?

a) Ratio analysis

b) Comparative financial statements

c) Comparative income statements

d) Trend analysis

Ans: a) Ratio analysis

27. Which of the following are techniques, tools or methods of vertical analysis and interpretation of financial statements?

a) Common size balance sheet

b) Common size income statement

c) Ratio analysis

d) All of the above

Ans: d) All of the above

28. Which of the following is generally a false statement for the current ratio analysis?

a) Ideal current ratio is 2:1.

b) Current ratio measures short term liquidity position of a company.

c) Current ratio is also known as working capital ratio.

d) None of the above

Ans: d) None of the above

29. Accounting provides data or information on:

a) Income and cost for the managers

b) Financial conditions of the institutions

c) Company’s tax liability for a particular year

d) All the above

Ans: d) All of the above

30. Which of the following statements are true?

a) External analysis depends entirely on issued financial statements.

b) Interpretation and analysis both are different.

c) Financial analysis covers interpretation.

d) All of the above

Ans: d) All of the above

31. In the long run analysis of financial statements the stress is on the:

a) Liquidity

b) Profitability

c) Solvency

d) Growth

Ans: c) Solvency

32. Who is responsible for designing and preparing the financial statements?

a) Company’s Management

b) Shareholders

c) Auditors

d) Promoters

Ans: a) Company’s Management

33. Analysis of any financial statement comprises

a) Balance sheet

b) Profit & loss account

c) Both (a) & (b)

d) none of these

Ans: c) Both (a) & (b)

34. Comparative financial analysis process shows the comparison between the items of which statement?

a) Balance sheet

b) Income statement

c) Both a) & b)

d) None of the above

Ans: c) Both a) & b)

35. Financial statements are:

a) Anticipated facts

b) Recorded facts

c) Estimated facts

d) none of these

Ans: b) Recorded facts

Financial Statement Analysis MCQs

Financial Statements MCQs

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

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

2.         The balance sheet shows the financial picture of a company at a given time.

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 reports the same percentage that appears in a vertical analysis.

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

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

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

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

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

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

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

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

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

26.     An organization's internal stakeholders consist of company owners, employees, owners, and managers.

27.     GAAP stands for Generally Accepted Accounting Principles.

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

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

30.     The AICPA’s Code of Professional Conduct requires that members prepare financial statements in accordance with GAAP.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

45.     the primary objective of external reporting is to provide useful financial information to the external users.

46.     A measurement of key relations between financial statement items is called ratio analysis.

47.     The information provided by financial statements is in summarized nature.

48.     ASB stands for Accounting standard board.

49.     An analysis done by management is an example of internal analysis.

50.     The ultimate aim of any financial statement is to provide financial information of the business to its various stakeholders.

Financial Statement Analysis MCQs

Financial Statements MCQs

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. The two most useful financial statements are balance sheet and profit loss account.   True

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

7. Financial statements provide a summary of accounts.                             False

8. Financial statements are based on recorded facts.                   True

9. Patent is an intangible asset.              True

10. Financial Statements are prepared on historical cost.                              True

11. A balance sheet includes owner’s equity, liabilities and assets.            True

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

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

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

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

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

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

18. Common-size financial statements are an example of vertical analysis.            True

19. Common size statements and financial ratios are the two tools employed in vertical analysis. True

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

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

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

23. Vertical analysis is also known as static analysis.          True

24. Horizontal analysis is also known as dynamic analysis.                              True

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

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

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

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

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

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

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

32. Financial statements disclose only monetary facts.                   True

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

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

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

36. 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.

37. Financial statements reflect the recorded facts.                        True

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

55. Liquid ratio is also known as the acid-test ratio.           True

56. Financial statements are the product of accounting process.                True

57. Ratio analysis is the most powerful and useful of financial analysis.    True

58. Preparation of financial statement is duty of company director.          False

59. Financial statements are meaningful and useful only when they are analysed and interpreted. True

60. Comparison of financial statements highlights the trend of the financial position, profitability and performance of the business.             True