StudyOSStudyOS CBSE Study Material, Class 5–12

Analysis of Financial Statements

NCERT Class 12 · Accountancy Based on NCERT Class 12 Accountancy textbook · Free CBSE study kit

Everything you need to ace this chapter, in one place.
Notes · Mind Map · Quiz · Assertion-Reason · Case Studies · Question Bank · Past Papers

Get Full Study Kit →
Studying with friends? Send them this chapter.

Chapter Notes

Overview
This chapter introduces the concept of financial statement analysis, a critical process for evaluating a company's operational efficiency and financial health. It explains the significance of analyzing financial data for various stakeholders like managers, investors, and creditors. The core idea is that raw financial statements are not enough; they must be analyzed using specific tools to derive meaningful insights for decision-making. The chapter focuses on three key tools: Comparative Statements, Common Size Statements, and Trend Analysis, which form the foundation for understanding more complex analyses like Ratio and Cash Flow Analysis.
Key Concepts (13)
Financial Statement Analysis
The process of critical evaluation of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm.
e.g. A bank manager analyzing a company's balance sheet to decide whether to grant a loan.
Analysis
Simplification of financial data by methodical classification given in the financial statements.
e.g. Rearranging balance sheet items into current and non-current categories to calculate liquidity ratios.
Interpretation
Explaining the meaning and significance of the data.
e.g. Concluding that a high current ratio indicates the company has good short-term solvency.
Cross Sectional Analysis
Comparison of a firm's financial data with other firms, typically within the same industry.
e.g. Comparing the gross profit margin of Maruti Suzuki with that of Tata Motors.
Time Series Analysis
Comparison of a firm's own financial performance over a period of time.
e.g. Comparing the net profit of Reliance Industries for the years 2022, 2023, and 2024.
Horizontal Analysis
A technique of financial analysis where financial statements for two or more periods are compared to study the trend and direction of changes. Also known as Comparative Analysis.
e.g. A comparative income statement showing revenue increased by 25% from 2023 to 2024.
Vertical Analysis
A technique of financial analysis where each item in a financial statement is expressed as a percentage of a common base item. Also known as Common Size Analysis.
e.g. In a common size balance sheet, showing that inventory is 15% of total assets.
Comparative Statements
Statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods.
e.g. A comparative balance sheet of a company for the years 2023 and 2024 showing changes in share capital and fixed assets.
Common Size Statements
Statements which indicate the relationship of different items of a financial statement with a common item by expressing each item as a percentage of that common item.
e.g. A common size income statement where all expenses are shown as a percentage of Revenue from Operations.
Trend Analysis
A technique of studying the operational results and financial position over a series of years by calculating trend percentages with respect to a base year.
e.g. Taking 2020 as the base year (100%), the trend percentage for sales in 2024 is calculated as (Sales in 2024 / Sales in 2020) * 100.
Ratio Analysis
A technique that describes the significant relationship which exists between various items of a balance sheet and a statement of profit and loss of a firm.
e.g. Calculating the Current Ratio (Current Assets / Current Liabilities) to assess short-term liquidity.
Cash Flow Analysis
Analysis of the actual movement of cash into and out of an organisation, summarizing the causes for changes in cash position between two balance sheet dates.
e.g. Preparing a cash flow statement to see why cash decreased despite the company making a profit.
Window Dressing
The practice of manipulating financial statements to present a more favorable picture of the company than what is actually true.
e.g. A company delaying payments to suppliers just before the year-end to show a lower amount of trade payables.
Formulas & Equations (5)
Absolute Change = Second Year Figure - First Year Figure
Reads as: Absolute change equals second year figure minus first year figure.
Variables: Second Year Figure: The financial data for the later period (e.g., 2016-17). First Year Figure: The financial data for the earlier period (e.g., 2015-16).
Use when: Calculating the change in rupee terms for any item in a comparative statement.
⚠ Students often subtract the second year from the first year, leading to an incorrect sign for the change.
Percentage Change = (Absolute Increase or Decrease / First Year Absolute Figure) × 100
Reads as: Percentage change equals absolute increase or decrease divided by first year absolute figure, multiplied by one hundred.
Variables: Absolute Increase or Decrease: The result from the first formula. First Year Absolute Figure: The financial data for the earlier period.
Use when: Calculating the relative change in percentage terms for any item in a comparative statement.
⚠ Students often divide by the second year figure instead of the first year (base year) figure.
Trend Percentage = (Current Year Figure / Base Year Figure) × 100
Reads as: Trend percentage equals current year figure divided by base year figure, multiplied by one hundred.
Variables: Current Year Figure: The financial data for the year being analyzed. Base Year Figure: The financial data for the chosen base year.
Use when: Calculating trend percentages for a series of years to analyze the direction of change over time.
⚠ Students forget to set the base year figure to 100% and calculate percentages for other years relative to it.
Common Size % (P&L) = (Item Amount / Revenue from Operations) × 100
Reads as: Common size percentage for a profit and loss item equals the item amount divided by revenue from operations, multiplied by one hundred.
Variables: Item Amount: The value of a specific expense or income item. Revenue from Operations: The total revenue from the company's main business operations.
Use when: Preparing a common size statement of profit and loss.
⚠ Students sometimes use Total Revenue (including other income) as the base instead of Revenue from Operations.
Common Size % (Balance Sheet) = (Item Amount / Total Assets or Total Liabilities) × 100
Reads as: Common size percentage for a balance sheet item equals the item amount divided by total assets or total liabilities, multiplied by one hundred.
Variables: Item Amount: The value of a specific asset, liability, or equity item. Total Assets or Total Liabilities: The total of all assets or the total of all liabilities and equity.
Use when: Preparing a common size balance sheet.
⚠ Students may use a different base, like total equity, instead of total assets or total liabilities.
How It Works
Preparing a Comparative Statement
  1. Step 1: List out absolute figures in rupees relating to two points of time (e.g., Year 1 and Year 2) in adjacent columns.
  2. Step 2: Find the change in absolute figures by subtracting the first year figure from the second year figure. Indicate the change as an increase (+) or decrease (–).
  3. Step 3: Calculate the percentage change using the formula: (Absolute Change / First Year Figure) × 100.
  4. Step 4: Present the data in a table with columns for Particulars, First Year, Second Year, Absolute Change, and Percentage Change.
💡 The base for calculating percentage change is always the first year (earlier period) figure, not the second year.
Preparing a Common Size Statement
  1. Step 1: List out absolute figures in rupees for the periods being analyzed.
  2. Step 2: Choose a common base. For the Statement of Profit and Loss, the base is Revenue from Operations (set to 100). For the Balance Sheet, the base is Total Assets or Total Liabilities (set to 100).
  3. Step 3: For every item in the statement, calculate its percentage of the common base using the formula: (Item Amount / Base Amount) × 100.
  4. Step 4: Present the data in a table with columns for Particulars, Absolute Amounts for each year, and the corresponding percentages for each year.
💡 The common base is different for the Income Statement (Revenue from Operations) and the Balance Sheet (Total Assets/Liabilities). Do not mix them up.
Performing Trend Analysis
  1. Step 1: Select the item to be analyzed (e.g., Revenue from Operations, Net Profit).
  2. Step 2: Choose a base year. The figure for the base year is taken as 100.
  3. Step 3: Calculate the trend percentage for each subsequent year using the formula: (Current Year Figure / Base Year Figure) × 100.
  4. Step 4: Analyze the trend percentages to see if they are rising, falling, or remaining constant over time, which indicates the direction of change.
💡 The base year is usually the earliest year in the series, but it can be any normal year. The choice of base year significantly impacts the interpretation of the trend.
Exam Traps — Don't Make These Mistakes
⚠ Confusing Base for Percentage Change in Comparative Statements
✗ Percentage Change = (Absolute Change / Second Year Figure) × 100
→ The formula requires the base to be the first year (earlier period) figure to show the relative change from that point. Using the second year figure gives a different, incorrect percentage.
✓ Percentage Change = (Absolute Change / First Year Figure) × 100
⚠ Using Wrong Base in Common Size Statement of Profit & Loss
✗ Expressing all items as a percentage of 'Total Revenue' (Revenue from Operations + Other Income).
→ The NCERT text explicitly states that for the Statement of Profit and Loss, the common base is 'Revenue from Operations'. Using 'Total Revenue' is incorrect as per the standard format.
✓ Expressing all items as a percentage of 'Revenue from Operations'.
⚠ Mixing Up Horizontal and Vertical Analysis
✗ Calling Common Size Statements a form of Horizontal Analysis.
→ Common Size Statements are a form of Vertical Analysis because they analyze data for a single period in relation to a common base. Comparative Statements are a form of Horizontal Analysis because they compare data across periods.
✓ Common Size Statements are a form of Vertical Analysis. Comparative Statements are a form of Horizontal Analysis.
⚠ Ignoring the 'Absolute Change' Column in Comparative Statements
✗ Only calculating and presenting the percentage change in a comparative statement.
→ The standard format for a comparative statement requires both the 'Absolute Increase/Decrease' and the 'Percentage Increase/Decrease' columns. Omitting one is an incomplete answer.
✓ Always include both the absolute change (in rupees) and the percentage change in your comparative statement table.
⚠ Misinterpreting the 'Analysis' vs 'Interpretation' Distinction
✗ Using the terms 'analysis' and 'interpretation' interchangeably.
→ They are distinct but complementary. 'Analysis' is the mechanical process of simplifying and classifying data. 'Interpretation' is the higher-order skill of explaining the meaning and significance of that analyzed data.
✓ Clearly define them: 'Analysis is the simplification of data, while interpretation is explaining the meaning and significance of that data.'
Compare & Contrast
Method of Analysis
Comparative Statements (Horizontal Analysis)
Common Size Statements (Vertical Analysis)
Comparative statements analyze changes across time periods (horizontal), while common size statements analyze the relationship of items within a single period (vertical).
Role in Financial Analysis
Analysis
Interpretation
Analysis is the mechanical process of simplifying and classifying financial data, whereas interpretation is the judgemental process of explaining the meaning and significance of that data.
Exam Focus
Marks pattern: 1 MCQ (1 mark) on definition or identification of tool, 1-2 numerical problems on preparing Comparative/Common Size statements (4-6 marks each), 1 short answer question (3 marks) on significance or limitations.
Most asked: Preparation of Comparative Statement of Profit and Loss · Preparation of Comparative Balance Sheet · Preparation of Common Size Statement of Profit and Loss · Preparation of Common Size Balance Sheet · Calculation and interpretation of Trend Percentages
Don't skip: Numerical question on preparing a Comparative Statement of Profit and Loss (often 5-6 marks).; Numerical question on preparing a Common Size Balance Sheet (often 4-5 marks).; A combined question asking to prepare both a Comparative and Common Size statement from the same data.
One-Line Revision (read aloud before the exam)
  1. Financial Statement Analysis is the critical evaluation of financial statements to make decisions.
  2. Analysis is the simplification of data, while Interpretation is explaining its meaning.
  3. Comparative Statements show changes in absolute and percentage terms over time (Horizontal Analysis).
  4. Common Size Statements express each item as a percentage of a common base (Vertical Analysis).
  5. For a Common Size P&L, the base is Revenue from Operations.
  6. For a Common Size Balance Sheet, the base is Total Assets or Total Liabilities.
  7. Trend Analysis calculates percentage changes over a series of years relative to a base year.
  8. The formula for Percentage Change in a Comparative Statement is (Absolute Change / First Year Figure) × 100.
  9. The formula for Trend Percentage is (Current Year Figure / Base Year Figure) × 100.
  10. Ratio Analysis describes the relationship between two financial statement items.
  11. Cash Flow Analysis studies the actual movement of cash into and out of a business.
  12. Limitations of financial analysis include ignoring price level changes and non-monetary aspects.
  13. Window dressing is the manipulation of financial statements to show a better picture.
  14. Cross-sectional analysis compares a firm with other firms, while time-series analysis compares it with its own past.
  15. A finance manager uses financial analysis for financial control and decision-making.

MCQs — 10 Questions with Answers

Q1. Which of the following best defines Financial Statement Analysis?

  • A. The process of critical evaluation of financial information to understand relationships and assess profitability, efficiency, and future prospects. ✓
  • B. The process of preparing financial statements in accordance with accounting standards.
  • C. The process of auditing financial statements to ensure their accuracy.
  • D. The process of recording financial transactions in the books of accounts.

Answer: A — Financial statement analysis is specifically the critical evaluation of financial information to understand relationships and assess the firm's financial health and prospects, not preparation, auditing, or recording of transactions.

Q2. Analysis and Interpretation are complementary in financial statement analysis because:

  • A. Analysis simplifies financial data and interpretation explains its meaning; without either, the other is ineffective. ✓
  • B. Both terms refer to the same process of classifying financial data.
  • C. Interpretation is only applicable to balance sheet analysis, while analysis is only for profit and loss statement.
  • D. They are sequential steps with no overlap or interdependence.

Answer: A — The study material explicitly states that analysis (simplification) and interpretation (explaining meaning) are complementary—analysis is useless without interpretation, and interpretation without analysis is impossible.

Q3. Which user of financial analysis is primarily concerned with the firm's ability to meet short-term obligations?

  • A. Long-term Lenders
  • B. Trade Payables ✓
  • C. Investors
  • D. Labour Unions

Answer: B — Trade payables appraise the firm's ability to meet short-term obligations and evaluate its liquidity position, as they are interested in payment within a very short period of time.

Q4. A Finance Manager uses financial analysis tools primarily to:

  • A. Study accounting data and make rational decisions while enabling financial control and reviewing operations. ✓
  • B. Prepare financial statements in compliance with tax laws.
  • C. Audit the books of accounts to detect fraud.
  • D. Calculate the market value of the firm's shares.

Answer: A — The study material states that a finance manager uses analysis tools to study accounting data for rational decision-making, financial control, and constant review of actual financial operations to identify deviations and take corrective action.

Q5. Time-Series Analysis differs from Cross-Sectional Analysis in that:

  • A. Time-series compares a firm's own performance over multiple periods; cross-sectional compares the firm with competitors. ✓
  • B. Time-series is used only by investors; cross-sectional is used only by lenders.
  • C. Time-series analyses balance sheet only; cross-sectional analyses profit and loss statement only.
  • D. Time-series is more important than cross-sectional analysis.

Answer: A — Time-series analysis compares a firm's performance over a time period (firm vs itself); cross-sectional analysis compares with other firms (firm vs competitors), enabling different comparative insights.

Q6. Which of the following is NOT a stated user of financial statement analysis according to the chapter?

  • A. Customers and suppliers for assessing credit risk ✓
  • B. Finance Managers for decision-making
  • C. Lenders for assessing long-term solvency
  • D. Labour Unions for assessing wage affordability

Answer: A — The chapter lists finance managers, lenders, investors, trade payables, labour unions, and government agencies as users, but does not specifically mention customers as primary users of financial analysis.

Q7. Long-term Lenders analyse financial statements to assess all of the following EXCEPT:

  • A. The firm's ability to pay daily operating expenses. ✓
  • B. The firm's long-term solvency and survival.
  • C. The firm's historical and future profitability.
  • D. The firm's ability to generate cash for interest and principal repayment.

Answer: A — Long-term lenders focus on long-term solvency, profitability, and debt repayment ability, not on daily operating expenses, which are short-term operating concerns evaluated by trade payables.

Q8. Financial analysis is described as a 'judgemental process' because it:

  • A. Aims to estimate current and past financial positions and predict future conditions based on relationships and analysis. ✓
  • B. Is used by judges and courts to resolve business disputes.
  • C. Requires an auditor's judgment before financial statements can be published.
  • D. Judges whether financial statements comply with accounting standards.

Answer: A — The study material states that financial analysis is a judgemental process that aims to estimate past, current, and future financial positions by analysing relationships and regrouping information to establish predictions.

Q9. Which objective of financial statement analysis involves comparing the relative importance of different items in the financial position of the firm?

  • A. To ascertain the relative importance of different components of the financial position. ✓
  • B. To assess current profitability and operational efficiency.
  • C. To identify reasons for changes in financial position.
  • D. To forecast future prospects of the firm.

Answer: A — The chapter explicitly lists 'to ascertain the relative importance of different components of the financial position of the firm' as one of the specific objectives of financial analysis.

Q10. A firm's net working capital increased from ₹50 lakh to ₹60 lakh, and an analyst wants to compare this firm's financial position with another firm in the same industry. Which type of analysis would be most appropriate to use alongside this comparison? (Assume both firms have different total assets.)

  • A. Cross-sectional analysis using common-size or ratio-based comparisons to account for size differences. ✓
  • B. Time-series analysis of the firm's working capital over five years.
  • C. An absolute change comparison showing that working capital increased by ₹10 lakh.
  • D. Trend analysis to forecast next year's working capital position.

Answer: A — Since the firm is being compared with competitors in the same industry and they have different sizes, cross-sectional analysis using standardised measures (ratios or common-size statements) is most appropriate to make meaningful comparisons independent of firm size.

Flashcards

What is Financial Statement Analysis?

It is the critical evaluation of financial information in financial statements to understand relationships among figures and assess profitability, efficiency, and future prospects.

Distinguish between Analysis and Interpretation in financial analysis.

Analysis simplifies financial data through methodical classification; interpretation explains the meaning and significance of that data—both are complementary.

Why is financial analysis significant for a Finance Manager?

It helps the finance manager study accounting data, determine operating policies, test operational efficiency, and enable financial control through reviews and corrective actions.

What do Trade Payables primarily focus on when analysing financial statements?

Trade payables assess the firm's liquidity position and ability to meet short-term obligations over a very short period of time.

What is the main concern of Long-term Lenders when analysing financial statements?

Long-term lenders are concerned with the firm's long-term solvency, survival, profitability, cash generation ability, and capacity to pay interest and repay principal.

Why do Investors focus on specific aspects of financial analysis?

Investors concentrate on the firm's present and future profitability, capital structure, management efficiency, and whether to buy, sell, or hold shares.

What is Time-Series Analysis in financial analysis?

Time-series analysis compares a firm's own financial performance over multiple periods to identify trends and changes in its operations.

What is Cross-Sectional Analysis in financial analysis?

Cross-sectional analysis compares the financial performance of one firm with other firms operating in the same or similar industries.

Name one key objective of financial statement analysis.

To assess the current profitability and operational efficiency of the firm so as to judge its overall financial health.

Why do economists and government agencies analyse financial statements?

Economists and government agencies analyse financial statements to study present business and economic conditions, support price regulations, and aid taxation decisions.

Important Board Questions

Define Financial Statement Analysis and state any two of its objectives. [2 marks]

Definition: critical evaluation of financial data to assess relationships and future prospects. List two from: assess profitability/efficiency, identify strengths/weaknesses, forecast prospects, evaluate management, identify reasons for change.

Explain why financial analysis is significant to Long-term Lenders. What specific aspects of a firm's financial statements do they focus on, and why? [5 marks]

Long-term lenders are concerned with solvency (ability to survive long-term) and repayment capacity. They focus on: profitability over time (ability to generate earnings), cash generation ability (for interest/principal payments), and capital structure (sources of funds). Justify each focus.

Distinguish between Time-Series Analysis and Cross-Sectional Analysis with a realistic business example for each. Explain which type of analysis would be more useful for a firm planning to expand into a new market, and why. [6 marks]

Time-series: compare firm's own performance over years (e.g. firm A's profit growth 2022–2024). Cross-sectional: compare firm A with competitors in same industry (e.g. firm A vs firm B vs firm C in 2024). For market expansion, cross-sectional is crucial to benchmark against competitors' efficiency ratios and profitability; time-series shows firm's own trend but not competitive position. Integrate both for complete expansion planning.

Assertion-Reason Questions for Analysis of Financial Statements

Q1. Assertion (A):

Financial Statement Analysis involves both simplification of financial data (analysis) and explaining its meaning (interpretation).

Reason (R):

Analysis is useless without interpretation, and interpretation without analysis is difficult because they are complementary processes serving different but interconnected purposes.

Answer: A — Both A and R are true, and R is the correct explanation of A — Both the assertion and reason are true, and the reason correctly explains why both components are necessary. Analysis alone provides organized data without meaning; interpretation alone lacks the organized foundation needed to explain.

Q2. Assertion (A):

Trade payables focus their financial analysis on assessing the firm's long-term solvency and profitability.

Reason (R):

Trade payables are interested in whether the company can meet all its financial obligations over an extended period.

Answer: D — A is false but R is true — The assertion is false because trade payables focus on short-term liquidity, not long-term solvency. The reason is also false because trade payables are concerned with very short-term payment ability, not extended-period obligations (that concerns long-term lenders).

Q3. Assertion (A):

Financial Statement Analysis is undertaken exclusively by internal management for internal decision-making purposes.

Reason (R):

External parties such as investors, creditors, and labour unions have no legitimate interest in analyzing a company's financial statements.

Answer: D — A is false but R is true — The assertion is false because the chapter clearly states analysis is undertaken by both management and external parties. The reason is also false because external users have significant interests in financial analysis. Students often incorrectly assume analysis is internal-only.

Unlock more Assertion-Reason questions in Premium — unlock →

Case-Based Questions (CBQ) for Analysis of Financial Statements

Case Study:

Rohit, a sole proprietor, started his business on April 1, 2026 with a capital of ₹5,00,000. On March 31, 2027, his total assets were ₹9,00,000 and total liabilities (excluding capital) were ₹2,00,000. During the year, he withdrew ₹60,000 for personal use and introduced additional capital of ₹1,00,000 on October 1, 2026. He wants to calculate his net profit for the year using the statement of profit and loss approach.

Q1. What is the closing capital of Rohit as on March 31, 2027?

  • A. ₹7,00,000 ✓
  • B. ₹9,00,000
  • C. ₹11,00,000
  • D. ₹2,00,000

Answer: A

Q2. What is the net profit earned by Rohit during the year 2026-27?

  • A. ₹1,60,000
  • B. ₹2,60,000 ✓
  • C. ₹3,60,000
  • D. ₹60,000

Answer: B

Q3. If Rohit had not introduced additional capital, what would have been his net profit?

  • A. ₹2,60,000
  • B. ₹1,60,000 ✓
  • C. ₹3,60,000
  • D. ₹4,60,000

Answer: B

Q4. Which of the following adjustments is necessary to convert closing capital into net profit?

  • A. Add drawings and subtract additional capital ✓
  • B. Add additional capital and subtract drawings
  • C. Add both drawings and additional capital
  • D. Subtract both drawings and additional capital

Answer: A

Unlock more case studies in Premium — unlock →

Previous Year Questions (PYQ) for Analysis of Financial Statements

Real CBSE board exam questions from past papers — free to attempt.

CBSE 2026 · Set 67/3/1 · 1 mark

The Current Ratio of Megh Raj Ltd. is 1.5 : 1. Which of the following transactions will reduce the ratio?

  • Sale of furniture of ₹18,000 at a loss of ₹2,000
  • Goods purchased on credit ₹75,000
  • Sale of goods costing ₹60,000 for ₹80,000
  • Payment of trade payables ₹40,000

CBSE 2026 · Set 67/3/1 · 3 marks

From the following information of Dholakia Ltd., prepare a Comparative Statement of Profit and Loss for the year ended 31st March, 2024 and 2025: Particulars 31st March 2025 (₹) 31st March 2024 (₹) Revenue from operations 30,00,000 15,00,000 Cost of revenue from operations 80% of revenue from operations 80% of revenue from operations Other Expenses 2,40,000 1,20,000 Tax Rate 50% 50%

CBSE 2026 · Set 67/3/1 · 4 marks

From the following information, calculate the Cost of Revenue from Operations: Revenue from operations ₹15,00,000 Opening inventory ₹2,00,000 Gross profit is 25% of cost of revenue from operations. Closing inventory was 2 times the opening inventory.

CBSE 2026 · Set 67/3/3 · 3 marks

From the following information of Kumar Ltd. prepare a Comparative Statement of Profit and Loss for the years ended 31st March, 2024 and 2025: Particulars, Revenue from operations: 60,00,000 (2024), 40,00,000 (2025), Cost of revenue from operations: 50% of revenue from operations, Other Expenses: 15,00,000 (2024), 10,00,000 (2025), Tax Rate: 50% for both years

CBSE 2026 · Set 67/4/1 · 3 marks

From the following information, prepare a Comparative Statement of Profit and Loss of AX Ltd. for the year ended 31st March, 2025: Particulars 2024-25 (₹) 2023-24 (₹): Revenue from Operations 50,00,000 25,00,000; Cost of Revenue from Operations 15,00,000 6,00,000; Other Expenses 5,00,000 4,00,000; Tax Rate 50%

CBSE 2026 · Set 67/4/2 · 1 mark

Which of the following statements are correct? I. A low current ratio endangers the business and puts it at risk of facing a situation, where it will not be able to pay its short-term debts on time. II. Trade payables turnover ratio expresses the relationship between net credit sales and average trade payables. III. Operating profit ratio plus Gross profit ratio = 100. IV. Inventory turnover ratio determines the number of times inventory is converted into revenue from operations during the accounting period under consideration. Options:

  • I and II
  • II and III
  • III and IV
  • I and IV

CBSE 2026 · Set 67/4/2 · 3 marks

From the following information, prepare a Common Size Statement of Profit and Loss of AG Ltd. for the year ended 31st March, 2025: Particulars 2024-25 (₹) 2023-24 (₹) Revenue from Operations 25,00,000 20,00,000 Other Income 1,00,000 1,00,000 Cost of Materials Consumed 17,00,000 14,00,000 Other Expenses 3,00,000 3,00,000 Tax Rate 50%

CBSE 2026 · Set 67/4/3 · 1 mark

The Debt-Equity Ratio of a company is 2 : 1. Which of the following transactions will increase the Debt-Equity Ratio ?

  • Issue of Shares ₹2,00,000
  • Issue of 8% Debentures ₹5,00,000
  • Issue of Bonus shares ₹4,00,000
  • Payment to Creditors ₹1,00,000

CBSE 2026 · Set 67/5/1 · 1 mark

From the following information obtained from the books of accounts: Total Current Assets (including stock and prepaid expenses) ₹2,00,000; Stock ₹20,000; Prepaid expenses ₹10,000; Current liabilities ₹1,70,000. The Quick Ratio of the company is:

  • 20 : 17
  • 1 : 1
  • 18 : 17
  • 19 : 17

CBSE 2026 · Set 67/5/1 · 1 mark

The following information is obtained from the books of Devdutt Ltd.: Working capital ₹4,00,000; Trade Payables ₹50,000; Other Current liabilities ₹1,00,000. Current assets of Devdutt Ltd. are:

  • ₹2,50,000
  • ₹4,50,000
  • ₹5,00,000
  • ₹5,50,000

CBSE 2026 · Set 67/5/3 · 1 mark

Which of the following groups of stakeholders are most concerned about a company's long-term solvency and survival?

  • Labour unions
  • Trade payables
  • Finance manager
  • Lenders

CBSE 2026 · Set 67/3/3 · 4 marks

Revenue from operations ₹15,00,000 Opening inventory ₹2,00,000 Gross profit is 25% of cost of revenue from operations. Closing inventory was 2 times the opening inventory.

See all 87 board PYQs for this chapter — open PYQ tab →

Class 12 Accountancy Formula Sheet

Every formula, ratio and format from all 10 chapters on one page, checked against the NCERT textbook and the CBSE 2026-27 syllabus. Free PDF download.

View the formula sheet →

Class 12 Accountancy Previous Year Questions, Chapter-wise

All 1230 CBSE board questions from 2022–2026, sorted by chapter and question type. Free PDF download.

See all past board questions →

Next chapterAccounting Ratios →
Found this useful? Share it with your class group.

You've seen the free preview. Open the full interactive study kit — mind map, instant-graded quiz, progress tracking — free, no sign-in required.

Open Full Study Kit — Free →

Premium unlocks the full Question Bank, Daily Practice Papers, Chapter Quiz and Full Mock Papers for every chapter.