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Financial Statement Analysis

MCQs | Multiple Choice
Questions and Answers
by Kumar Nirmal Prasad - November 02, 2020 !0

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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

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B. State whether the following statements are

true or false.

Multiple Choice Questions and Answers

(MCQs)

Financial Accounting Corporate Accounting

Departmental Issue of Shares

Accounting
Issue and Redemption
Branch Accounting of Debentures

Hire Purchase and Bonus and Rights

Installment System Shares

Single Entry System Buy Back of Shares

Royalty Accounts Redemption of

Preference Shares
Not for Profit
Organisation Internal
Reconstruction
Basics of Partnership
External
Admission of a Reconstruction
Partner
Accounts of Holding
Retirement & Death Companies
of a Partner
Corporate Accounting
Dissolution of Firms 500 MCQs

Management Chapter Wise MCQs

Accounting

Management 1. Auditing MCQs

Accounting MCQs
2. Business
Marginal and Communication
Absorption Costing
3. Company Law
Budget and
Budgetary Control 4. Financial Accounting

Standard Costing 5. Indian Financial

System
Ratio Analysis
6. Income Tax
Cash Flow Statement
7. Business Laws
Funds Flow
Statement 8. Financial
Management
Financial Statement
and Financial 9. Human Resource
Statements Analysis Management
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

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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)

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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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