This quiz works best with JavaScript enabled. Home > Class 12 > Class 12 Accountancy Chapter 8 Analysis Of Financial Statements – Quiz 1 🏠 Homepage 📘 Download PDF Books 📕 Premium PDF Books Class 12 Accountancy Chapter 8 Analysis Of Financial Statements Quiz 1 (25 MCQs) Quiz Instructions Select an option to see the correct answer instantly. 1. During vertical analysis, what serves as the base amount on an income statement? A) Beginning inventory. B) Owner's equity. C) Total assets. D) Sales revenue. Show Answer Correct Answer: D) Sales revenue. 2. Sales-Cost of Goods Sold = Operating profit A) TRUE. B) FALSE. C) All the above. D) None of the above. Show Answer Correct Answer: B) FALSE. 3. Net Profit is calculated by subtracting ..... from Gross Profit. A) Cost of Goods Sold. B) Inventory. C) Total Expenses. D) Sales. Show Answer Correct Answer: C) Total Expenses. 4. As required by ISA 500 and audit evidence to draw reasonable conclusions on which to base the auditor's opinion is obtained by performing: A) Risk assessment procedures. B) Tests of controls. C) Substantive procedures. D) All three of the above. Show Answer Correct Answer: D) All three of the above. 5. What does an income statement show? A) The financial performance of a business. B) A sales projection for a business. C) The value of a business. D) None of the above. Show Answer Correct Answer: A) The financial performance of a business. 6. What is the significance of the statement of cash flows in financial reporting? A) The statement of cash flows is used to calculate revenue. B) The statement of cash flows provides information on a company's fixed assets. C) The statement of cash flows is crucial for understanding a company's cash position and financial health. D) The statement of cash flows is only relevant for tax purposes. Show Answer Correct Answer: C) The statement of cash flows is crucial for understanding a company's cash position and financial health. 7. Limitation of financial analysis is A) Dressing. B) Window. C) Window Dressing. D) None. Show Answer Correct Answer: C) Window Dressing. 8. Analysis of Financial Statements is significant: A) For Creditors. B) For Managers. C) For Employees. D) For all of the above. Show Answer Correct Answer: D) For all of the above. 9. The owner's equity was 25% in 2021 and 15% in 2022. Should the owner be satisfied? A) Yes. B) No. C) This is not the correct ratio to determine. D) None of the above. Show Answer Correct Answer: B) No. 10. Which type of accounting is more detailed and contains strategic information? A) Financial accounting. B) Managerial accounting. C) Tax accounting. D) Both financial and tax accounting. Show Answer Correct Answer: B) Managerial accounting. 11. AASB F.16 defines liquidity as: A) The availability of cash in the near future after taking account of financial commitments over this period. B) How much fluid is in a glass. C) Having a lot of money in the bank. D) None of the above. Show Answer Correct Answer: A) The availability of cash in the near future after taking account of financial commitments over this period. 12. Gross profit is 50000 salary is 5800 rent paid 6000 provision for doubtful debts 2, 000 (old) commission credit 4000 calculate net profit of the firm A) 42200. B) 40000. C) 42000. D) 45000. Show Answer Correct Answer: A) 42200. 13. The percent of property, plant and equipment to total assets is an example of: A) Vertical analysis. B) Solvency analysis. C) Profitability analysis. D) Horizontal analysis. Show Answer Correct Answer: A) Vertical analysis. 14. An income statement, besides reporting revenue and expenses, indicates what about a business? A) Share price movements by week. B) Financial progress over a fiscal period. C) Exact cash on hand each day. D) Inventory quantities by SKU. Show Answer Correct Answer: B) Financial progress over a fiscal period. 15. Which of the following items will not appear on the income statement of a service business? A) Revenue. B) Expenses. C) Net Profit. D) Cost of goods sold. Show Answer Correct Answer: D) Cost of goods sold. 16. What is the value of return on asset? A) 5.28%. B) 4.59%. C) 4.87%. D) 5.06%. Show Answer Correct Answer: C) 4.87%. 17. In vertical Revenue statement interim dividend paid is classifie Finance expenses A) TRUE. B) FALSE. C) All the above. D) None of the above. Show Answer Correct Answer: B) FALSE. 18. How does the income statement link to the balance sheet in financial reporting? A) The income statement and balance sheet are completely unrelated. B) The income statement is used for tax purposes only and does not impact the balance sheet. C) Net income from the income statement flows into the liabilities section of the balance sheet. D) Net income from the income statement flows into the retained earnings section of the balance sheet. Show Answer Correct Answer: D) Net income from the income statement flows into the retained earnings section of the balance sheet. 19. What is the value of total asst turnover? A) 13.27%. B) 15.16%. C) 14.72%. D) 14.38%. Show Answer Correct Answer: C) 14.72%. 20. Why does the auditor should design and perform tests of controls? A) Internal control is found to be weak by the auditor. B) The auditor needs to carry out his audit as to rely on internal controls. C) To obtain sufficient appropriate audit evidence as to the operational effectiveness of relevant controls. D) To obtain the information on client 's objectives, activities, financial position and related with assessing risk. Show Answer Correct Answer: C) To obtain sufficient appropriate audit evidence as to the operational effectiveness of relevant controls. 21. Closing stock is valued at A) Cost. B) Net realizable value. C) Cost or net realisable value whichever is more. D) Cost or net realisable value whichever is less. Show Answer Correct Answer: D) Cost or net realisable value whichever is less. 22. What is the significance of the income statement for investors? A) Shows the company's debt levels. B) Indicates profitability over a period. C) Tracks the stock market performance. D) Lists the company's shareholders. Show Answer Correct Answer: B) Indicates profitability over a period. 23. Which of the following best describes gross profit? A) Total revenue minus cost of goods sold. B) Total revenue minus operating expenses. C) Total revenue minus liabilities. D) Total expenses minus operating profit. Show Answer Correct Answer: A) Total revenue minus cost of goods sold. 24. The amount owed by a business to its suppliers for credit purchases is called A) Accounts receivable. B) Accounts payable. C) Merchandise payable. D) Purchases on account. Show Answer Correct Answer: B) Accounts payable. 25. Gross Profit= A) Cost of Sales less Sales. B) Sales less Debtors Allowances less Cost of Sales. C) Sales less Cost of Sales. D) Sales plus Debtors Allowances less Cost of Sales. Show Answer Correct Answer: B) Sales less Debtors Allowances less Cost of Sales. 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