CUET UG Accountancy Booster Test 2 Objectives -

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CUET UG Accountancy Booster Test 1 Objectives

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 1 Objectives

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QUESTION 1 OF 20

How does common size statement analysis assist in comparing current profits among enterprises that differ substantially in size?

Answer Review

1 How does common size statement analysis assist in comparing current profits among enterprises that differ substantially in size?

A By focusing solely on absolute profit figures.

B By calculating the exact cash inflow and outflow.

C By bringing numbers to a common base to provide insight into the structure of financial statements.

D By predicting future changes in price levels.

💡 Short Explanation

Firms may differ greatly in size. Common size statements convert figures into percentages. This makes comparison meaningful.

✅ Correct Answer Explanation

Common size analysis expresses all items as percentages of a common base, such as Revenue from Operations or Total Assets. This eliminates the effect of size differences and allows meaningful comparison of profitability between enterprises. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Absolute profits alone do not allow meaningful comparison.
Option B → Cash flow analysis is different from common size analysis.
Option D → Common size statements do not predict inflation.

🎯 Strategy

Used: Concept Recognition

Application: Identify the main purpose of common size statements.

Final Logic: Common base improves comparability.

🧠 Memory Trick

Common Base = Fair Comparison

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Common Size Statements – Page X

2 Assertion (A):
Common size income statements show items of expenditure as a percentage of revenue from operations.
Reason (R):
It helps in understanding the efficiency of different departments by revealing structural changes of respective percentages over successive periods.

A Both A and R are true, and R is the correct explanation of A.

B Both A and R are true, but R is not the correct explanation of A.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

Expenditures are expressed as percentages of revenue. Percentage analysis reveals efficiency trends. Structural changes become visible.

✅ Correct Answer Explanation

Common size income statements convert each expense item into a percentage of Revenue from Operations. This allows management to observe changing cost structures and evaluate departmental efficiency over time. Thus, both statements are true, and the reason correctly explains the assertion.

❓ Why Other Options Are Incorrect

Option B → Reason directly explains assertion.
Option C → Reason is true.
Option D → Assertion is true.

🎯 Strategy

Used: Assertion–Reason Analysis

🧠 Memory Trick

Expense % = Efficiency Check

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Common Size Income Statement – Page X

3 Match the tools with the base item used to assess component importance:

List 1	List 2
1. Common base for Statement of Profit and Loss	a. Total Assets or Total Liabilities (100)
2. Common base for Balance Sheet	b. Changes in absolute and relative terms
3. Comparative Statement focus	c. Base year item as percentage relationship
4. Trend Analysis focus	d. Revenue from operations (100)

A 1-a, 2-d, 3-b, 4-c

B 1-b, 2-c, 3-a, 4-d

C 1-c, 2-b, 3-d, 4-a

D 1-d, 2-a, 3-b, 4-c

💡 Short Explanation

Profit & Loss → Revenue Base. Balance Sheet → Total Assets/Liabilities. Comparative → Changes. Trend → Base Year.

✅ Correct Answer Explanation

Correct matching: 1 → d (Revenue from Operations) 2 → a (Total Assets or Liabilities) 3 → b (Absolute and Relative Changes) 4 → c (Base Year Relationship) Hence, Option D is correct.

❓ Why Other Options Are Incorrect

They contain incorrect matching combinations.

🎯 Strategy

Used: Option Grouping

🧠 Memory Trick

Revenue–Assets–Changes–Base Year

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Tools of Analysis – Page X

4 In a common size balance sheet, if total assets are Rs. 41,50,000 and fixed assets (tangible) are Rs. 14,00,000, what is the percentage of fixed assets to total assets?

A 30.00%

B 33.73%

C 38.55%

D 24.10%

💡 Short Explanation

Common size percentage = Item ÷ Total × 100. Fixed assets are compared with total assets.

✅ Correct Answer Explanation

Calculation: (14,00,000 ÷ 41,50,000) × 100 = 0.3373 × 100 = 33.73% Thus, fixed assets constitute 33.73% of total assets.

❓ Why Other Options Are Incorrect

Based on incorrect calculations.

🎯 Strategy

Used: Substitution

🧠 Memory Trick

Item ÷ Total × 100

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Common Size Balance Sheet – Page X

5 Consider the following statements regarding Comparative Statement of Profit and Loss:
I. It shows absolute and percentage changes in revenue and expenses over a period.
II. Deviation in the use of accounting principles makes comparative data completely reliable.

A Statement I is true, Statement II is false

B Both I and II are true

C Statement I is false, Statement II is true

D Both I and II are false

💡 Short Explanation

Comparative statements show changes. Different accounting principles reduce reliability.

✅ Correct Answer Explanation

Statement I is true because comparative statements present both absolute and percentage changes. Statement II is false because deviations in accounting principles reduce comparability and reliability.

❓ Why Other Options Are Incorrect

Statement II is incorrect.

🎯 Strategy

Used: Statement Evaluation

🧠 Memory Trick

Consistency = Reliability

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Comparative Statements – Page X

6 If Reserve and Surplus was Rs. 4,00,000 in 2016 and Rs. 3,00,000 in 2017, what is the percentage change in a Comparative Balance Sheet?

A 25% Increase

B 33.33% Decrease

C 25% Decrease

D 10% Decrease

💡 Short Explanation

Decrease = ₹1,00,000. Base value = ₹4,00,000.

✅ Correct Answer Explanation

Decrease: ₹3,00,000 − ₹4,00,000 = –₹1,00,000 Percentage Change: (1,00,000 ÷ 4,00,000) × 100 = 0.25 × 100 = 25% Therefore, there is a 25% decrease.

❓ Why Other Options Are Incorrect

Option B → Incorrect percentage.
Option A → Wrong direction.
Option D → Incorrect calculation.

🎯 Strategy

Used: Substitution

🧠 Memory Trick

Decrease ÷ Original × 100

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Comparative Balance Sheet – Page X

7 Which of the following parties is most focused on the evaluation of a firm's short-term liquidity to assess its ability to meet short-term claims?

A Lenders

B Trade payables

C Shareholders

D Labour unions

💡 Short Explanation

Trade payables are short-term creditors. Liquidity determines repayment ability.

✅ Correct Answer Explanation

Trade payables are interested in whether the firm can meet its obligations in the near future. Therefore, they closely monitor liquidity and working capital.

❓ Why Other Options Are Incorrect

Option A → Long-term lenders focus on solvency.
Option C → Shareholders focus on profitability.
Option D → Labour unions focus on wage capacity.

🎯 Strategy

Used: Stakeholder Identification

🧠 Memory Trick

Trade Payables = Liquidity Focus

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Liquidity – Page X

8 A common size balance sheet shows the proportion of current assets. If inventory drops from 7.69% to 3.62% of total assets, it indicates:

A An increase in long-term borrowings.

B An increase in total liabilities.

C A strengthening of fixed assets.

D A structural shift in working capital components.

💡 Short Explanation

Inventory proportion has reduced. Current asset structure has changed.

✅ Correct Answer Explanation

A significant reduction in inventory percentage indicates a change in the composition of working capital. This reflects a structural shift in current asset allocation.

❓ Why Other Options Are Incorrect

The data only indicates a change in current asset structure.

🎯 Strategy

Used: Concept Recognition

🧠 Memory Trick

Inventory Change = Working Capital Shift

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Working Capital Structure – Page X

9 Arrange the items as they appear in the Equity and Liabilities part of a common size balance sheet to assess solvency:
1. Shareholder's Funds
2. Non-current Liabilities
3. Current Liabilities

A 1, 2, 3

B 3, 2, 1

C 2, 1, 3

D 1, 3, 2

💡 Short Explanation

Shareholder funds appear first. Non-current liabilities follow. Current liabilities come last.

✅ Correct Answer Explanation

The standard presentation in the Balance Sheet is: 1. Shareholder's Funds 2. Non-current Liabilities 3. Current Liabilities Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

They do not follow the prescribed balance sheet format.

🎯 Strategy

Used: Option Grouping

🧠 Memory Trick

Funds → Long-Term → Short-Term

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Solvency Structure – Page X

10 In a comparative balance sheet, how is the percentage change in long-term borrowings calculated to determine changes in debt capacity?

A (First year borrowings / Absolute change) × 100

B (Current year total liabilities / Base year liabilities) × 100

C (Absolute Increase or Decrease in borrowings / First year absolute borrowings) × 100

D (Absolute change / Second year borrowings) × 100

💡 Short Explanation

Percentage change uses the original year as the base. Absolute increase or decrease is compared with the first year.

✅ Correct Answer Explanation

The standard comparative statement formula is: Percentage Change in Borrowings = (Absolute Increase or Decrease ÷ First Year Borrowings) × 100 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Other formulas do not represent percentage change in comparative analysis.

🎯 Strategy

Used: Formula Recognition

🧠 Memory Trick

Change ÷ Original × 100

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Debt Capacity Analysis – Page X

📄 Passage

"Common size analysis is of immense use for comparing enterprises which differ substantially in size as it provides an insight into the structure of financial statements. Inter-firm comparison or comparison of the company's position with the related industry as a whole is possible with the help of common size statement analysis. The following procedure may be adopted for preparing the common size statements: 1. List out absolute figures in rupees at two points of time. 2. Choose a common base (as 100). 3. For all items work out the percentage of that total."

According to the passage, common size analysis provides insight into the structure of financial statements primarily to help with:

A Taxation purposes

B Creating ambiguity in accounting

C Finding mathematical errors

D Comparing enterprises that differ substantially in size

💡 Short Explanation

Firms may vary greatly in size. Common size analysis converts figures into percentages. Structural comparison becomes easier.

✅ Correct Answer Explanation

The passage explicitly states that common size analysis is useful for comparing enterprises that differ substantially in size. By expressing all items as percentages of a common base, the analysis removes the effect of scale and highlights structural differences. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Taxation is not the primary objective.
Option B → Analysis aims to improve clarity, not ambiguity.
Option C → Mathematical error detection is not its main purpose.

🎯 Strategy

Used: Passage-Based Identification

Application: Identify the exact purpose stated in the passage.

Final Logic: Common size analysis improves inter-firm comparison.

🧠 Memory Trick

Different Sizes → Common Size Analysis

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Common Size Analysis – Page X

📄 Passage

What is chosen as a common base to compute percentages in a common size statement as per the passage?

A 50

B 100

C 10

D 1000

💡 Short Explanation

Common size statements require a base. The base is always treated as 100%.

✅ Correct Answer Explanation

The passage clearly states that while preparing common size statements, a common base is chosen and assigned a value of 100. All other items are then expressed as percentages of this base. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Not the standard base.
Option C → Not used in common size statements.
Option D → Not prescribed by accounting practice.

🎯 Strategy

Used: Direct Recall

🧠 Memory Trick

Common Base = 100%

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Common Size Statement Procedure – Page X

13 Investors concentrate on the analysis of the firm's present and future profitability and its capital structure. What is the ultimate purpose of this analysis for an investor?

A To ascertain its influence on the firm's earning and risk, and to decide whether to buy, sell, or hold shares.

B To estimate wage increments for labour unions.

C To fix prices of the firm's products.

D To regulate government price ceilings.

💡 Short Explanation

Investors seek returns. Earnings and risk influence investment decisions. Buy, hold, or sell decisions depend on analysis.

✅ Correct Answer Explanation

Investors analyze profitability and capital structure to evaluate earning potential and financial risk. This helps them decide whether to invest more, retain existing shares, or sell their holdings. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Wage increments concern labour unions.
Option C → Product pricing is a management decision.
Option D → Price ceilings are government functions.

🎯 Strategy

Used: Stakeholder Identification

🧠 Memory Trick

Investor = Buy, Hold, Sell

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Investors – Page X

14 If cost of goods sold is Rs. 10,00,000 and revenue from operations is Rs. 18,00,000, what is the percentage of cost of goods sold to revenue in a common size statement?

A 48.00%

B 52.56%

C 55.56%

D 60.00%

💡 Short Explanation

Cost is expressed as a percentage of revenue. Revenue is taken as 100%.

✅ Correct Answer Explanation

Calculation: (10,00,000 ÷ 18,00,000) × 100 = 0.5556 × 100 = 55.56% Therefore, Cost of Goods Sold represents 55.56% of Revenue from Operations.

❓ Why Other Options Are Incorrect

They are based on incorrect calculations.

🎯 Strategy

Used: Substitution

🧠 Memory Trick

Cost ÷ Revenue × 100

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Common Size Income Statement – Page X

15 Assertion (A):
Financial analysis ensures that all non-monetary operational efficiencies are accurately reflected.
Reason (R):
Financial analysis is solely based on monetary information provided in financial statements.

A Both A and R are true, and R is the correct explanation of A.

B Both A and R are true, but R is not the correct explanation of A.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

Financial analysis mainly uses monetary data. Non-monetary factors are often ignored.

✅ Correct Answer Explanation

The assertion is false because financial analysis cannot fully reflect non-monetary aspects such as employee morale, leadership quality, and customer satisfaction. The reason is true because financial analysis is based largely on monetary information. Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion is false.
Option B → Assertion remains false.
Option C → Reason is true.

🎯 Strategy

Used: Assertion–Reason Analysis

🧠 Memory Trick

Money ≠ Everything

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Limitations – Page X

16 Who utilizes financial analysis to ensure that resources of the firm are used most efficiently?

A Only the Finance Manager

B Top management in general and other functional managers

C Economists

D Trade payables

💡 Short Explanation

Resource utilization is a management responsibility. Managers use analysis for control and planning.

✅ Correct Answer Explanation

Top management and functional managers use financial analysis to monitor performance, allocate resources efficiently, and ensure organizational objectives are achieved. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Responsibility is broader than only the finance manager.
Option C → Economists study economic conditions.
Option D → Trade payables focus on liquidity.

🎯 Strategy

Used: Stakeholder Identification

🧠 Memory Trick

Management = Resource Utilization

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Resource Utilisation – Page X

17 Financial statement analysis evaluates managerial performance but it is a judgmental process. Which of the following is a key limitation?

A It only focuses on horizontal analysis.

B It acts as an absolute substitute for human judgment.

C It may be misleading without the knowledge of changes in accounting procedures followed by the firm.

D It focuses purely on long-term lending.

💡 Short Explanation

Accounting methods may change. Comparisons become misleading. Judgement is required.

✅ Correct Answer Explanation

Financial analysis depends on accounting information. If accounting policies change and users are unaware of those changes, conclusions drawn from the analysis may be misleading. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Analysis includes many techniques.
Option B → Human judgement remains necessary.
Option D → Analysis is not limited to lending.

🎯 Strategy

Used: Limitation Recognition

🧠 Memory Trick

Policy Change = Comparison Problem

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Limitations – Page X

18 Evaluate the statements regarding system evaluation:
I. Financial analysis helps the management in evaluating the system of internal control.
II. A technique frequently used by one analyst will automatically serve the exact purpose of all other analysts.

A Statement I is true, Statement II is false

B Both I and II are true

C Statement I is false, Statement II is true

D Both I and II are false

💡 Short Explanation

Financial analysis supports internal control evaluation. Different analysts have different objectives.

✅ Correct Answer Explanation

Statement I is true because management uses financial analysis to evaluate internal controls and operational effectiveness. Statement II is false because analytical techniques are selected based on the specific purpose of the analyst. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Statement II is incorrect.

🎯 Strategy

Used: Statement Evaluation

🧠 Memory Trick

Different Analysts, Different Needs

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Internal Control Evaluation – Page X

19 The analysis of financial statements provides the basis for governmental actions. Which of the following is an example of such action?

A Appraising short-term liquidity

B Modifying the company's internal control

C Deciding whether to hold or sell company shares

D Fixing of prices, ceiling on profits, and tax subsidies

💡 Short Explanation

Governments use financial information for policy decisions. Price controls and tax incentives are examples.

✅ Correct Answer Explanation

Government agencies analyze financial statements to formulate economic policies. These may include fixing prices, imposing profit ceilings, and granting tax subsidies. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Concerns trade payables.
Option B → Management responsibility.
Option C → Investor decision.

🎯 Strategy

Used: Stakeholder Identification

🧠 Memory Trick

Government = Policy Actions

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Government Actions – Page X

20 Why do researchers analyze financial statements in the context of economic insight?

A To check daily cash outflow.

B To study the present business and economic conditions.

C To force dividend freezes on all firms.

D To alter the historical accounting concepts.

💡 Short Explanation

Researchers study trends and economic conditions. Financial statements provide useful evidence.

✅ Correct Answer Explanation

Researchers analyze financial statements to understand business performance, industry trends, and economic conditions. Such analysis supports academic research and economic policy studies. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Too narrow in scope.
Option C → Not a research objective.
Option D → Researchers do not alter accounting concepts.

🎯 Strategy

Used: Stakeholder Identification

🧠 Memory Trick

Researchers = Economic Insight

📚 Class XII – Accountancy Part II – Chapter: Analysis of Financial Statements – Topic: Economic Insight – Page X

CUET UG Accountancy Booster Test 1 Objectives

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