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CA Foundation Analysis of Financial Statements — practice questions

Explore 6 free Analysis of Financial Statements questions in CA Foundation Accountancy. Open each question or exercise to read its content, reference answers and available explanation.

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Analysis of Financial Statements questions and exercises with answers

Showing questions 1–6 of 6.

Current Ratio is calculated asRead the answer and worked solution →Quick (Acid Test) Ratio EXCLUDES which item from current assets?Read the answer and worked solution →If Net Profit is Rs 50,000 on Sales of Rs 5,00,000, Net Profit Ratio isRead the answer and worked solution →Debt-Equity Ratio is calculated asRead the answer and worked solution →Match each book or statementRead the answer and worked solution →True or false: the accounting processRead the answer and worked solution →

Worked practice questions

Current Ratio is calculated as

  1. Current Assets ÷ Current Liabilities
  2. Quick Assets ÷ Current Liabilities
  3. Current Assets ÷ Total Assets
  4. Net Profit ÷ Sales
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Correct answer: A. Current Assets ÷ Current Liabilities

1. Current Ratio measures short-term solvency. 2. Formula: Current Assets / Current Liabilities. 3. An ideal ratio is around 2:1; below 1 signals liquidity risk. 4. Hence (A) is correct. _Source: Maharashtra Balbharati Std XII Book-Keeping & Accountancy, Ch 9 "Analysis of Financial Statements", §9.1 ¶§9.1_

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Quick (Acid Test) Ratio EXCLUDES which item from current assets?

  1. Cash
  2. Debtors
  3. Inventory
  4. Bank balance
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Correct answer: C. Inventory

1. Quick assets = Current assets less inventory and prepaid expenses. 2. Inventory is excluded because it is the least liquid of current assets. 3. Cash, debtors and bank balances are quickly realisable. 4. Hence (C) is the excluded item. _Source: Maharashtra Balbharati Std XII Book-Keeping & Accountancy, Ch 9 "Analysis of Financial Statements", §9.2 ¶§9.2_

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If Net Profit is Rs 50,000 on Sales of Rs 5,00,000, Net Profit Ratio is

  1. 1%
  2. 10%
  3. 5%
  4. 25%
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Correct answer: B. 10%

1. Net Profit Ratio = (Net Profit / Sales) × 100. 2. = (50,000 / 5,00,000) × 100 = 10%. 3. It measures the percentage of every rupee of sales that becomes profit after all expenses. 4. Hence (C) is correct. _Source: Maharashtra Balbharati Std XII Book-Keeping & Accountancy, Ch 9 "Analysis of Financial Statements", §9.3 ¶§9.3_

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