Question : Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Assertion (A): The limitations of financial statements also form the limitations of the ratio analysis.
Reason (R): Since the ratios are derived from the financial statements, any weakness in the original financial statements will also creep in the derived analysis in the form of Accounting Ratios.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is false but Reason (R) is true
Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
Solution : Due to the fact that ratio analysis is derived from financial statements, any flaws in the original financial statements will also appear in the derived analysis. As a result, the limits of the ratio analysis are likewise limitations of the financial statements.
Hence the correct answer is option 1.
Question : Assertion (A): Liquidity Ratios are used to evaluate a firm's long-term financial position. Reason (R): Liquidity ratios, such as the current ratio and quick ratio, are useful in determining the firm's long-term financial position.
Question : Assertion (A): A company's long-term financial position is determined by its liquidity ratios: Reason (R): Liquidity ratios, such as the current ratio and quick ratio, are useful in determining the firm's long-term financial position.
Question : Assertion (A): Liquidity Ratios provide information on the firm's capacity to satisfy its immediate financial obligations. Reason (R): The current ratio and quick ratio are two liquidity ratios that aid in determining a company's financial standing and ability to
Assertion (A): Activity Ratios are the ratios that are calculated for measuring the efficiency of operations of business
Question : Assertion A: - Financial analysis identifies symptoms of the problems but does not offer its diagnosis. The management has to look for remedies to rectify the problems.
Reason R: - Analysis of financial statements is based on the information given in the financial
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile