NCERT Solutions for Class 12 Accountancy Chapter 4 Analysis of Financial Statements

Q. The financial statements of a business enterprise include:

  • (a) Balance Sheet
  • (b) Statement of Profit and Loss Account
  • (c) Cash Flow Statement
  • (d) All of these
  • Ans. (d) All of these
 Explanation :

Financial statements are a collection of summary-level reports about an organisation's financial results, financial position, and cash flows. They include the income statement, balance sheet, and statement of cash flows.

Q. The most commonly used tools for financial analysis are:

  • (a) Horizontal analysis
  • (b) Vertical analysis
  • (c) Ratio analysis
  • (d) All of these
  • Ans. (d) All of these
 Explanation :

Financial Statement Analysis takes the raw financial information from the financial statements and turns it into usable information that can be used to make decisions. The three types of analysis are horizontal analysis, vertical analysis, and ratio analysis. Each one of these tools gives decision makers a littel more insight into how well the company is performing.

Q. An annual report is issued by a company to its:

  • (a) Directors
  • (b) Auditors
  • (c) Shareholders
  • (d) Management
  • Ans. (c) Shareholders
 Explanation :

An annual report is a comprehensive report on a company's activities throughout the preceding year. Annual reports are intended to give shareholders and other interested people information about the company's activities and financial performance.

Q. Comparative statements are also known as:

  • (a) Dynamic analysis
  • (b) Horizontal analysis
  • (c) Vertical analysis
  • (d) External analysis
  • Ans. (b) Horizontal analysis
 Explanation :

Comparative statements or comparative financial statements are statements of financial position of a business at different periods. These statements help in determining the profitability of the business by comparing financial data from two or more accounting periods. The data from two or more periods are updated side by side, which is why it is also known as Horizontal Analysis.