CUET UG Accountancy Booster Test 3 Objectives -

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CUET UG Accountancy Booster Test 2 Objectives

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 2 Objectives

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QUESTION 1 OF 20

The evaluation of profitability over a time period through regrouping information is referred to as:

Answer Review

1 The evaluation of profitability over a time period through regrouping information is referred to as:

A Vertical analysis

B Cross sectional analysis

C Common size analysis

D Time series analysis

💡 Short Explanation

Time series analysis studies financial performance across multiple years. It helps evaluate profitability trends over time.

✅ Correct Answer Explanation

Time series analysis examines financial data over successive years to identify trends in profitability, growth, and performance. Since the question focuses on evaluating profitability over a period of time, time series analysis is the correct answer.

❓ Why Other Options Are Incorrect

A. Vertical analysis → Focuses on percentages within one accounting period.
B. Cross sectional analysis → Compares different firms at the same point in time.
C. Common size analysis → Converts figures into percentages of a common base.

🎯 Strategy

Used: Concept Identification

🧠 Memory Trick

Time Series = Trends Over Time

📚 Class XII – Analysis of Financial Statements – Trend Analysis & Time Series Analysis.

2 If an enterprise's total revenue was ₹28,25,000 and employee benefit expenses were ₹8,25,000. In a common size statement (where revenue from operations is ₹25,00,000 and is taken as 100%), what is the percentage of employee benefit expenses to revenue from operations?

A 22.5%

B 33.0%

C 29.2%

D 35.0%

💡 Short Explanation

Employee Benefit Expenses are expressed as a percentage of Revenue from Operations.

✅ Correct Answer Explanation

Calculation: (8,25,000 ÷ 25,00,000) × 100 = 0.33 × 100 = 33% Therefore, employee benefit expenses represent 33.0% of revenue from operations.

❓ Why Other Options Are Incorrect

A → Incorrect computation.
C → Based on wrong denominator.
D → Overstated percentage.

🎯 Strategy

Used: Common Size Statement Formula

🧠 Memory Trick

Expense ÷ Revenue × 100

📚 Class XII – Analysis of Financial Statements – Common Size Statement.

3 Assertion (A): Common size analysis allows an analyst to compare the financing characteristics of two companies of different sizes in the same industry.
Reason (R): Each item is expressed as a percentage of a common base, such as total assets, allowing for relative structural comparison.

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

Common size analysis removes size differences by converting figures into percentages.

✅ Correct Answer Explanation

Both statements are true. The reason correctly explains the assertion because expressing items as percentages of a common base makes comparison between different-sized companies meaningful.

❓ Why Other Options Are Incorrect

B → Reason directly explains Assertion.
C → Reason is true.
D → Assertion is also true.

🎯 Strategy

Used: Assertion–Reason Analysis

🧠 Memory Trick

Common Base = Easy Comparison

📚 Class XII – Analysis of Financial Statements – Common Size Analysis.

4 Match the Following

List 1	List 2
1. Ignores price level changes	a. Fails to capture impact of depreciation method changes
2. Misleading without accounting procedure knowledge	b. Does not reflect current position or true market value
3. Ignores non-monetary aspects	c. Inflation is not factored into historical data
4. Prepared on accounting concepts	d. Management quality and employee relations are excluded

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

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

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

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

💡 Short Explanation

These are standard limitations of financial statement analysis.

✅ Correct Answer Explanation

Each limitation is correctly paired with its consequence as shown above.

❓ Why Other Options Are Incorrect

They contain incorrect pairings.

🎯 Strategy

Used: Matching Logic

🧠 Memory Trick

Inflation–Methods–Qualitative–Historical

📚 Class XII – Analysis of Financial Statements – Limitations.

5 How is the base year relationship established in trend analysis for profit variation?

A Current Year Item ÷ Next Year Item × 100

B Base Year Item ÷ Current Year Item × 100

C Total Assets ÷ Net Profit × 100

D Item of different year ÷ Same item in base year × 100

💡 Short Explanation

Trend analysis compares each year's figure with the base year figure.

✅ Correct Answer Explanation

Trend Percentage Formula: Trend Percentage = (Item of Different Year ÷ Same Item in Base Year) × 100 Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

They do not represent the trend percentage formula.

🎯 Strategy

Used: Formula Recognition

🧠 Memory Trick

Current ÷ Base × 100

📚 Class XII – Analysis of Financial Statements – Trend Analysis.

6 Long-term borrowings:
2016 = ₹16,00,000
2017 = ₹19,00,000
What is the absolute and percentage change?

A ₹3,00,000 ; 15.00%

B ₹3,00,000 ; 18.75%

C ₹4,00,000 ; 20.00%

D ₹3,00,000 ; 18.00%

💡 Short Explanation

Find increase and divide by original amount.

✅ Correct Answer Explanation

Absolute Change: 19,00,000 − 16,00,000 = 3,00,000 Percentage Change: (3,00,000 ÷ 16,00,000) × 100 = 0.1875 × 100 = 18.75% Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Incorrect calculations.

🎯 Strategy

Used: Percentage Change Formula

🧠 Memory Trick

Change ÷ Original × 100

📚 Class XII – Analysis of Financial Statements – Comparative Balance Sheet.

7 I. Trade payables appraise the ability of the company to meet its short-term obligations.
II. Cash flow statement projects the causes for the changes in the cash position between two balance sheets.

A Both I and II are true

B Statement I true, Statement II false

C Statement I false, Statement II true

D Both false

💡 Short Explanation

Both statements correctly describe liquidity analysis.

✅ Correct Answer Explanation

Trade payables focus on short-term repayment ability, while cash flow analysis explains changes in cash position. Therefore both statements are correct.

❓ Why Other Options Are Incorrect

Because neither statement is false.

🎯 Strategy

Used: Statement Verification

🧠 Memory Trick

Liquidity = Trade Payables + Cash Flow

📚 Class XII – Analysis of Financial Statements – Liquidity Analysis.

8 A trend in a working capital ratio is continuously falling over years. According to trend analysis principles, this could signify:

A Guaranteed increase in market capitalization

B Accounting error

C Detection of a problem or sign of good/poor management

D Failure of common size analysis

💡 Short Explanation

Trend analysis helps identify emerging strengths or weaknesses.

✅ Correct Answer Explanation

A declining ratio may indicate operational issues or management inefficiency. Trend analysis is specifically used to detect such patterns.

❓ Why Other Options Are Incorrect

A → Not guaranteed.
B → Not necessarily an error.
D → Unrelated.

🎯 Strategy

Used: Trend Interpretation

🧠 Memory Trick

Falling Trend = Warning Signal

📚 Class XII – Analysis of Financial Statements – Trend Analysis.

9 Arrange the limitations:
1. Monetary information alone is considered.
2. Reports do not consider price level changes.
3. Accounting policies might change without analyst knowledge.

A 1, 2, 3

B 3, 2, 1

C 2, 1, 3

D 2, 3, 1

💡 Short Explanation

The sequence follows the order presented in the chapter's discussion of limitations.

✅ Correct Answer Explanation

Correct arrangement: 2 → 3 → 1 Hence Option D is correct.

❓ Why Other Options Are Incorrect

They do not match the prescribed sequence.

🎯 Strategy

Used: Sequential Ordering

🧠 Memory Trick

Price → Policy → Monetary

📚 Class XII – Analysis of Financial Statements – Limitations.

10 Profit Before Tax = ₹17,50,000
Tax = ₹6,12,500
Find the tax rate.

A 30%

B 35%

C 40%

D 45%

💡 Short Explanation

Tax Rate = Tax ÷ Profit Before Tax × 100

✅ Correct Answer Explanation

(6,12,500 ÷ 17,50,000) × 100 = 0.35 × 100 = 35% Therefore, the tax rate is 35%.

❓ Why Other Options Are Incorrect

They are not obtained from the calculation.

🎯 Strategy

Used: Formula Substitution

🧠 Memory Trick

Tax ÷ PBT × 100

📚 Class XII – Analysis of Financial Statements – Profit & Tax Analysis.

11 "Trend Analysis: It is a technique of studying the operational results and financial position over a series of years. Using the previous years' data of a business enterprise, trend analysis can be done to observe the percentage changes over time in the selected data. The trend percentage is the percentage relationship, in which each item of different years bear to the same item in the base year. Trend analysis is important because, with its long run view, it may point to basic changes in the nature of the business."
Based on the passage, why is trend analysis considered important for an enterprise's future prospects?

A It provides short-run cash flows.

B It calculates daily profitability.

C With its long-run view, it may point to basic changes in the nature of the business.

D It regulates governmental tax subsidies.

💡 Short Explanation

Trend analysis studies performance over many years. Long-term trends reveal fundamental business changes.

✅ Correct Answer Explanation

The passage explicitly states that trend analysis is important because, with its long-run view, it may point to basic changes in the nature of the business. These insights help management and investors assess future prospects.

❓ Why Other Options Are Incorrect

A → Cash flow analysis deals with cash flows.
B → Trend analysis does not calculate daily profitability.
D → Government tax subsidies are unrelated.

🎯 Strategy

Used: Passage-Based Identification

🧠 Memory Trick

Trend Analysis = Long-Term Business Direction

📚 Class XII – Analysis of Financial Statements – Trend Analysis Importance.

12 "Trend Analysis: It is a technique of studying the operational results and financial position over a series of years. Using the previous years' data of a business enterprise, trend analysis can be done to observe the percentage changes over time in the selected data. The trend percentage is the percentage relationship, in which each item of different years bear to the same item in the base year. Trend analysis is important because, with its long run view, it may point to basic changes in the nature of the business."
According to the passage, the trend percentage is a percentage relationship involving:

A Each item of different years bearing to the same item in the base year.

B Total assets of different companies in the current year.

C Ratio of current liabilities to revenue.

D Absolute increase divided by the common base.

💡 Short Explanation

Trend percentages compare yearly figures with a base year.

✅ Correct Answer Explanation

The passage defines trend percentage as the percentage relationship in which each item of different years bears to the same item in the base year.

❓ Why Other Options Are Incorrect

B → Refers to cross-sectional comparison.
C → Represents a ratio, not trend percentage.
D → Describes comparative statement calculations.

🎯 Strategy

Used: Direct Recall from Passage

🧠 Memory Trick

Trend = Current Year Compared with Base Year

📚 Class XII – Analysis of Financial Statements – Trend Percentage.

13 Why might shareholders' interest be limited to merely deciding whether to buy, sell, or hold shares rather than evaluating deep internal systemic operations?

A They possess complete control over the internal control system.

B They are responsible for setting prices of goods.

C They primarily evaluate whether it can afford a wage increase.

D In some large companies, their role is not in direct management but in evaluating the earning and risk returns on their investment.

💡 Short Explanation

Shareholders are owners, not managers. Their focus is investment return and risk.

✅ Correct Answer Explanation

In large companies, shareholders generally do not participate in day-to-day management. Their primary concern is assessing profitability, risk, and whether to buy, hold, or sell shares.

❓ Why Other Options Are Incorrect

A → Internal controls are management's responsibility.
B → Pricing decisions are management decisions.
C → Wage capacity is a labour union concern.

🎯 Strategy

Used: Stakeholder Identification

🧠 Memory Trick

Shareholders = Buy, Hold, Sell

📚 Class XII – Analysis of Financial Statements – Investors & Shareholders.

14 Which technique summarizes the causes for the changes in the cash position of a business enterprise between the dates of two balance sheets to aid operational cash decisions?

A Comparative Statements

B Cash Flow Analysis

C Ratio Analysis

D Trend Analysis

💡 Short Explanation

Cash Flow Analysis explains movement in cash balances.

✅ Correct Answer Explanation

Cash Flow Analysis identifies cash inflows and outflows and explains why the cash position changed between two balance sheet dates.

❓ Why Other Options Are Incorrect

A → Shows changes in financial statements.
C → Measures relationships between items.
D → Studies long-term trends.

🎯 Strategy

Used: Concept Recognition

🧠 Memory Trick

Cash Position Change = Cash Flow Analysis

📚 Class XII – Analysis of Financial Statements – Cash Flow Analysis.

15 Assertion (A): Financial statement analysis is just a study of reports of the company.
Reason (R): It does not completely reflect the current market position due to being based on historical accounting concepts and conventions.

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 depends on reports. Reports are historical and may not show the current market situation.

✅ Correct Answer Explanation

Both statements are true. Financial statement analysis relies on company reports, and these reports are based on historical accounting concepts, which may not fully reflect current market realities.

❓ Why Other Options Are Incorrect

The reason directly explains the assertion.

🎯 Strategy

Used: Assertion–Reason Analysis

🧠 Memory Trick

Historical Reports ≠ Complete Current Reality

📚 Class XII – Analysis of Financial Statements – Limitations of Financial Analysis.

16 Resource Utilisation (Theory MCQ)
The process of determining the best possible estimates and predictions about future conditions by studying the efficiency of operations is called:

A Horizontal auditing

B Market condition analysis

C Financial Statement Analysis

D Cost accounting

💡 Short Explanation

Financial statement analysis helps forecasting and planning.

✅ Correct Answer Explanation

Financial Statement Analysis studies operational efficiency and financial performance to make predictions and estimates regarding future business conditions.

❓ Why Other Options Are Incorrect

A → Not a recognized forecasting technique.
B → Broader economic analysis.
D → Focuses on cost determination.

🎯 Strategy

Used: Concept Recognition

🧠 Memory Trick

Analysis Today = Better Decisions Tomorrow

📚 Class XII – Analysis of Financial Statements – Forecasting Function.

17 2015–16:
Revenue from Operations = ₹60,00,000
Total Revenue = ₹61,50,000
Other Income = ₹1,50,000
2016–17:
Revenue from Operations = ₹75,00,000
Total Revenue = ₹76,20,000
Other Income = ₹1,20,000
What is the absolute decrease in Other Income?

A ₹15,00,000

B ₹14,70,000

C ₹1,50,000

D ₹30,000 (Decrease)

💡 Short Explanation

Other Income = Total Revenue − Revenue from Operations

✅ Correct Answer Explanation

2015–16 Other Income: 2015–16 Other Income: 61,50,000 − 60,00,000 = 1,50,000 2016–17 Other Income: 76,20,000 − 75,00,000 = 1,20,000 Decrease: 1,50,000 − 1,20,000 = 30,000 Thus, there is a decrease of ₹30,000.

❓ Why Other Options Are Incorrect

They do not reflect the actual difference.

🎯 Strategy

Used: Numerical Analysis

🧠 Memory Trick

Other Income = Total Revenue − Operating Revenue

📚 Class XII – Analysis of Financial Statements – Comparative Analysis.

18 I. Financial analysis may be misleading without knowledge of changes in accounting procedures.
II. Financial analysis perfectly accounts for the impact of price level changes.

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

Accounting policy changes affect comparability. Financial analysis does not automatically adjust for inflation.

✅ Correct Answer Explanation

Statement I is correct because accounting method changes can mislead users. Statement II is false because ignoring price level changes is a known limitation.

❓ Why Other Options Are Incorrect

Statement II is false.

🎯 Strategy

Used: Statement Evaluation

🧠 Memory Trick

Policy Changes Matter; Inflation Matters Too

📚 Class XII – Analysis of Financial Statements – Limitations.

19 Government agencies need financial analysis for which purpose?

A Determining internal operational efficiency

B Price regulations, taxation, and similar purposes

C Evaluating daily managerial performance

D Assessing cross-sectional employee benefits

💡 Short Explanation

Government uses financial information for policy and regulation.

✅ Correct Answer Explanation

Government agencies analyze financial statements to formulate taxation policies, regulate prices, and make economic decisions affecting industries and businesses.

❓ Why Other Options Are Incorrect

A → Internal management function.
C → Management evaluation function.
D → Not a government analysis objective.

🎯 Strategy

Used: Stakeholder Identification

🧠 Memory Trick

Government = Regulation + Taxation

📚 Class XII – Analysis of Financial Statements – Government Agencies.

20 Economists use financial statement analysis to judge the extent of concentration of economic power. This is an example of identifying:

A Trend Percentage

B Component Percentage

C Pitfalls in the financial policies pursued

D Short-term liquidity

💡 Short Explanation

Economists study broader economic and market conditions. They identify weaknesses and policy implications.

✅ Correct Answer Explanation

Economists analyze financial statements to understand market trends, concentration of economic power, and weaknesses or pitfalls in financial policies pursued by firms and industries.

❓ Why Other Options Are Incorrect

A → Trend percentage is a calculation tool.
B → Component percentage relates to common-size analysis.
D → Short-term liquidity concerns creditors.

🎯 Strategy

Used: Concept Identification

🧠 Memory Trick

Economists Look for Policy & Market Insights

📚 Class XII – Analysis of Financial Statements – Economists and Market Conditions.

CUET UG Accountancy Booster Test 2 Objectives

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