CUET UG Accountancy Booster Test 3 Tools of Analysis -

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CUET UG Accountancy Booster Test 2 Tools of Analysis

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 2 Tools of Analysis

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QUESTION 1 OF 20

📄 Passage

Common Size Statement, also known as component percentage statement, is a financial tool for studying the key changes and trends in the financial position and operational result of a company. Here, each item in the statement is stated as a percentage of the aggregate, or revenue from operations of which that item is a part. For example, a common size balance sheet shows the percentage of each asset to the total assets. Such statements also allow an analyst to compare the operating and financing characteristics of two companies of different sizes.

According to the passage, what specific mechanism fundamentally enables the comparison of characteristics of two companies of very different sizes?

Answer Review

📄 Passage

According to the passage, what specific mechanism fundamentally enables the comparison of characteristics of two companies of very different sizes?

A Utilizing absolute change analysis alone

B Exclusively calculating trend percentages based on historical data

C Stating items as a component percentage of an aggregate

D Adhering strictly to horizontal analysis principles

💡 Short Explanation

Common Size Statements convert figures into percentages. This removes size differences between firms.

✅ Correct Answer Explanation

The passage states that in a Common Size Statement, each item is expressed as a percentage of an aggregate (such as total assets or revenue from operations). This standardization enables comparison between companies of different sizes. Therefore, Option C is correct.

❓ Why Other Options Are Incorrect

A → Absolute change compares periods, not company size.
B → Trend percentages relate to time-series analysis.
D → Horizontal analysis focuses on period-to-period changes.

🎯 Strategy

Used: Direct Recall from Passage

🧠 Memory Trick

Common Size = Common Percentage Base

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

📄 Passage

Numerical Application
If a firm's total assets are ₹41,50,000 and its tangible fixed assets are ₹14,00,000, what aggregate acts as the base value (100%) for calculating the common size percentage of the fixed assets?

A ₹14,00,000

B Revenue from Operations

C ₹27,50,000

D ₹41,50,000

💡 Short Explanation

In a Common Size Balance Sheet, Total Assets = 100%. Individual assets are expressed as percentages of Total Assets.

✅ Correct Answer Explanation

For balance sheet analysis, Total Assets serve as the common base. Therefore, ₹41,50,000 is taken as 100%.

❓ Why Other Options Are Incorrect

A → This is the asset value being measured.
B → Used in Common Size Income Statements.
C → Not the prescribed base.

🎯 Strategy

Used: Common Size Base Recognition

🧠 Memory Trick

Balance Sheet → Total Assets = 100%

📚 Class XII – Analysis of Financial Statements – Common Size Balance Sheet

3 Comparative Statements
What serious technical limitation directly applies to horizontal analysis if the enterprise alters its accounting principles between consecutive years?

A Financial data can no longer be listed in absolute terms whatsoever

B Financial data won't be inherently comparative unless the specific deviations are footnoted

C Percentage change suddenly becomes mathematically impossible to compute

D The trend analysis algorithm automatically adjusts for the conceptual disparity

💡 Short Explanation

Consistency is required for meaningful comparison. Accounting policy changes affect comparability.

✅ Correct Answer Explanation

When accounting principles change between years, financial figures lose direct comparability. Proper disclosure is required to make valid comparisons.

❓ Why Other Options Are Incorrect

A → Absolute figures can still be listed.
C → Percentage calculations remain possible.
D → No automatic adjustment exists.

🎯 Strategy

Used: Concept-Based Elimination

🧠 Memory Trick

Different Rules = Weak Comparison

📚 Class XII – Analysis of Financial Statements – Comparative Statements

4 Assertion–Reason
Assertion: Effective period comparison through comparative statements requires evaluating at least two distinct periods.
Reason: It is necessary to subtract the first year from the second year to find absolute change.

A Both A and R are true and R is the correct explanation

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

C A is true, R is false

D A is false, R is true

💡 Short Explanation

Comparative statements require at least two years. Absolute change is calculated using both periods.

✅ Correct Answer Explanation

Comparative statements analyze changes between periods. Since absolute change is calculated by subtracting one year's figure from another, two periods are essential.

❓ Why Other Options Are Incorrect

Both statements are true.
The reason directly explains the assertion.

🎯 Strategy

Used: Assertion–Reason Analysis

🧠 Memory Trick

Comparison Needs Two Years

📚 Class XII – Analysis of Financial Statements – Horizontal Analysis

5 Absolute Change Formula
In the standard formula for extracting percentage change in horizontal analysis, the denominator is:

A Second year absolute figure

B Difference between first and second year

C First year absolute figure

D Statistical average of first and second year

💡 Short Explanation

Percentage change uses the base year's figure.

✅ Correct Answer Explanation

Formula: Percentage Change = (Absolute Change ÷ First Year Figure) × 100 Therefore, the denominator is the first-year absolute figure.

❓ Why Other Options Are Incorrect

They do not follow the prescribed formula.

🎯 Strategy

Used: Formula Recognition

🧠 Memory Trick

Change ÷ Original × 100

📚 Class XII – Analysis of Financial Statements – Percentage Change

6 Percentage Change Calculation
Year 1 Income Tax = ₹6,12,500
Year 2 Income Tax = ₹10,24,000
Find the percentage increase.

A 40.18%

B 55.20%

C 82.11%

D 67.18%

💡 Short Explanation

Calculate increase. Divide by Year 1 amount.

✅ Correct Answer Explanation

Increase: ₹10,24,000 − ₹6,12,500 = ₹4,11,500 Percentage Increase: (4,11,500 ÷ 6,12,500) × 100 = 0.6718 × 100 ≈ 67.18% Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Based on incorrect calculations.

🎯 Strategy

Used: Substitution Method

🧠 Memory Trick

Increase ÷ Original × 100

📚 Class XII – Analysis of Financial Statements – Comparative Statements

7 Preparation of Comparative Statements
Step 1 involves listing absolute figures. Which columns do they occupy in the standard exhibit?

A Columns 1 and 2

B Columns 4 and 5

C Columns 2 and 3

D Columns 3 and 4

💡 Short Explanation

First numerical data columns contain year-wise figures.

✅ Correct Answer Explanation

In the standard comparative statement format, the absolute figures for the two years are generally presented in Columns 2 and 3.

❓ Why Other Options Are Incorrect

They do not match the prescribed format.

🎯 Strategy

Used: Format Recall

🧠 Memory Trick

Year 1 & Year 2 = Columns 2 and 3

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

8 Change Calculation Rules
Evaluate the statements:
I. A decrease is indicated by a minus sign or brackets.
II. Absolute change calculates the ratio multiplier between two years.

A Both I and II are correct

B Only I is correct

C Only II is correct

D Neither I nor II are correct

💡 Short Explanation

Decreases are shown with brackets/minus signs. Absolute change measures difference, not ratio.

✅ Correct Answer Explanation

Statement I is correct. Statement II is incorrect because absolute change is simply: Current Year − Previous Year It does not calculate a ratio.

❓ Why Other Options Are Incorrect

Statement II is false.

🎯 Strategy

Used: Statement Evaluation

🧠 Memory Trick

Absolute Change = Difference, Not Ratio

📚 Class XII – Analysis of Financial Statements – Comparative Statements

9 Common Size Income Statement
Revenue from Operations = ₹18,00,000
Profit After Tax = ₹7,08,000
Find the common size percentage of Profit After Tax.

A 39.33%

B 46.60%

C 44.44%

D 40.00%

💡 Short Explanation

Profit is expressed as a percentage of Revenue.

✅ Correct Answer Explanation

Calculation: (7,08,000 ÷ 18,00,000) × 100 = 0.3933 × 100 = 39.33% Therefore, Profit After Tax is 39.33% of Revenue from Operations.

❓ Why Other Options Are Incorrect

Incorrect calculations.

🎯 Strategy

Used: Common Size Formula

🧠 Memory Trick

PAT ÷ Revenue × 100

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

10 Common Size Balance Sheet
Share Capital = ₹12,00,000
Total Equity & Liabilities = ₹32,50,000
Find the component percentage.

A 38.55%

B 32.31%

C 36.92%

D 33.73%

💡 Short Explanation

Component Percentage = Item ÷ Total × 100

✅ Correct Answer Explanation

Calculation: (12,00,000 ÷ 32,50,000) × 100 = 0.3692 × 100 = 36.92% Thus, Share Capital constitutes 36.92% of Total Equity and Liabilities.

❓ Why Other Options Are Incorrect

They result from incorrect computations.

🎯 Strategy

Used: Percentage Calculation

🧠 Memory Trick

Part ÷ Whole × 100

📚 Class XII – Analysis of Financial Statements – Common Size Balance Sheet

11 Match the Following
Match the advanced financial analysis terminologies with their correct core applications:

List 1	List 2
1. Horizontal Analysis	a. Common-size statements
2. Vertical Analysis	b. Competitor evaluation
3. Time Series Analysis	c. Trend analysis spanning years
4. Inter-firm Comparison	d. Comparative statements over two periods

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

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

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

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

💡 Short Explanation

Horizontal Analysis → Comparative Statements Vertical Analysis → Common Size Statements Time Series Analysis → Trend Analysis Inter-firm Comparison → Competitor Evaluation

✅ Correct Answer Explanation

Correct matching: 1 → d (Comparative statements over two periods) 2 → a (Common-size statements) 3 → c (Trend analysis spanning years) 4 → b (Competitor evaluation) Hence, Option B is correct.

❓ Why Other Options Are Incorrect

They contain incorrect analytical pairings.

🎯 Strategy

Used: Matching Logic

🧠 Memory Trick

Horizontal–Comparative, Vertical–Common Size, Time Series–Trend, Inter-firm–Competitor

📚 Class XII – Analysis of Financial Statements – Tools of Analysis

12 Trend Percentage Calculation
If the base year profit equals ₹5,00,000 and Year 3 profit equals ₹7,50,000, what is the trend percentage for Year 3?

A 150%

B 50%

C 125%

D 200%

💡 Short Explanation

Trend % = Current Year ÷ Base Year × 100

✅ Correct Answer Explanation

Calculation: (7,50,000 ÷ 5,00,000) × 100 = 1.50 × 100 = 150% Thus, the trend percentage is 150%.

❓ Why Other Options Are Incorrect

B → Represents only the increase.
C → Incorrect calculation.
D → Profit did not double.

🎯 Strategy

Used: Formula Substitution

🧠 Memory Trick

Current ÷ Base × 100

📚 Class XII – Analysis of Financial Statements – Trend Percentages

13 Growth Direction
Extrapolating growth direction via trend percentages requires observing whether a financial metric is:

A Expressed purely in non-monetary societal terms

B Utilised solely for isolated inter-firm comparison

C Completely detached from any previous historical data

D Displaying a falling, rising, or remaining relatively constant trajectory

💡 Short Explanation

Trends are identified through movement patterns.

✅ Correct Answer Explanation

Trend analysis focuses on observing whether a financial variable is rising, falling, or remaining stable over time. These patterns indicate growth direction.

❓ Why Other Options Are Incorrect

A → Trend analysis uses monetary data.
B → Not limited to inter-firm comparison.
C → Historical data is essential.

🎯 Strategy

Used: Concept Recognition

🧠 Memory Trick

Trend = Rise, Fall, or Stable

📚 Class XII – Analysis of Financial Statements – Growth Direction

14 Arrange the Sequence
Arrange the analytical thought sequence required for trend analysis:
1. Detect signs of good or poor management
2. Calculate base trend percentages for sequential years
3. Observe the falling or rising pattern

A 1, 2, 3

B 2, 3, 1

C 3, 1, 2

D 1, 3, 2

💡 Short Explanation

First calculate trend percentages. Then observe patterns. Finally interpret management effectiveness.

✅ Correct Answer Explanation

Trend analysis follows: 1. Calculate trend percentages. 2. Observe rising/falling trends. 3. Detect signs of good or poor management. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

They do not follow the logical analytical process.

🎯 Strategy

Used: Sequential Logic

🧠 Memory Trick

Calculate → Observe → Interpret

📚 Class XII – Analysis of Financial Statements – Pattern Detection

15 Ratio Analysis Limitation
A major limitation of relying rigidly on ratio analysis as a solitary relationship measure is that it:

A Demands executing horizontal analysis beforehand

B Completely excludes the balance sheet parameters

C Focuses solely on non-monetary sociological aspects

D May be profoundly misleading if systemic price level changes are ignored

💡 Short Explanation

Inflation affects comparability. Historical values may become misleading.

✅ Correct Answer Explanation

Ratio analysis often uses historical accounting data. If price-level changes or inflation are ignored, conclusions drawn from ratios may be misleading.

❓ Why Other Options Are Incorrect

A → Not mandatory.
B → Ratio analysis heavily uses balance sheet data.
C → Ratio analysis uses monetary information.

🎯 Strategy

Used: Limitation Recognition

🧠 Memory Trick

Inflation Ignored = Distorted Ratios

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

16 Assertion–Reason
Assertion: Accounting ratios effectively measure profitability, long-term solvency, and operational efficiency.
Reason: Ratios establish comparative significance among individual items across income and position statements.

A Both A and R are true and R is the correct explanation

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

C A is false, R is true

D A is true, R is false

💡 Short Explanation

Ratios compare related financial items. These comparisons reveal performance and solvency.

✅ Correct Answer Explanation

Ratios measure relationships between balance sheet and income statement items. These relationships help evaluate profitability, efficiency, and solvency. Therefore, the reason correctly explains the assertion.

❓ Why Other Options Are Incorrect

Both statements are true.
The reason directly explains the assertion.

🎯 Strategy

Used: Assertion–Reason Analysis

🧠 Memory Trick

Ratio = Relationship = Performance Measure

📚 Class XII – Analysis of Financial Statements – Ratio Analysis

17 Cash Inflow
Beyond raw balances, isolating the actual movement of cash into an organization helps project:

A Its absolute percentage component changes

B The precise manner cash has been received and its distinct sources

C Total aggregated profitability exclusively

D Stagnant inventory holding periods

💡 Short Explanation

Cash inflow analysis identifies sources of cash.

✅ Correct Answer Explanation

Cash inflow analysis helps determine where cash originates, such as operating activities, financing activities, or investing activities.

❓ Why Other Options Are Incorrect

A → Related to common-size analysis.
C → Cash flow is different from profitability.
D → Inventory analysis is unrelated.

🎯 Strategy

Used: Concept Recognition

🧠 Memory Trick

Cash Inflow = Source of Cash

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

18 Net Cash Flow Calculation
Cash generated from operations = ₹2,00,000
Bank Loan = ₹1,00,000
Total Cash Outflow = ₹4,50,000
Find Net Cash Flow.

A Positive ₹1,50,000

B Negative ₹3,50,000

C Negative ₹1,50,000

D Positive ₹3,00,000

💡 Short Explanation

Total Inflow = ₹3,00,000 Outflow exceeds inflow.

✅ Correct Answer Explanation

Total Cash Inflow: ₹2,00,000 + ₹1,00,000 = ₹3,00,000 Net Cash Flow: 3,00,000-4,50,000=-1,50,000 Therefore, Net Cash Flow = Negative ₹1,50,000.

❓ Why Other Options Are Incorrect

They do not satisfy the net cash flow formula.

🎯 Strategy

Used: Formula Substitution

🧠 Memory Trick

Net Cash Flow = Inflow − Outflow

📚 Class XII – Analysis of Financial Statements – Cash Outflow

19 Inter-Firm Comparison
Cross-sectional analysis uniquely empowers decision-making by allowing comparison of:

A A firm's past performance against its own future

B Only identical physical units produced

C A strictly held base year with the current year

D A business enterprise alongside its market peer firms

💡 Short Explanation

Cross-sectional analysis compares different firms.

✅ Correct Answer Explanation

Inter-firm or cross-sectional analysis evaluates a company's performance relative to competitors and peer firms operating in the same market.

❓ Why Other Options Are Incorrect

A → Time-series analysis.
B → Not the purpose.
C → Trend analysis concept.

🎯 Strategy

Used: Concept Recognition

🧠 Memory Trick

Cross-Sectional = Compare Companies

📚 Class XII – Analysis of Financial Statements – Inter-Firm Comparison

20 Intra-Firm Comparison
When an enterprise evaluates its efficiency using comparative statements of its own data over two years, it is engaging in:

A Time series analysis representing Intra-firm comparison

B Cross-sectional market analysis

C Direct Inter-firm competitive comparison

D Broad industry benchmark analysis

💡 Short Explanation

Intra-firm comparison studies the same firm's performance over time.

✅ Correct Answer Explanation

Comparing a firm's own financial data across different years is known as intra-firm comparison and is a form of time-series analysis.

❓ Why Other Options Are Incorrect

B → Compares firms at one point in time.
C → Competitor comparison.
D → Industry-wide analysis.

🎯 Strategy

Used: Concept Recognition

🧠 Memory Trick

Intra = Within the Same Firm

📚 Class XII – Analysis of Financial Statements – Intra-Firm Comparison

CUET UG Accountancy Booster Test 2 Tools of Analysis

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