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Comparability Standards in Financial Statements Analysis

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Comparability Standards in Financial Statements Analysis

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Questions and Answers

What is the purpose of using comparability standards in financial statement analysis?

To determine the market share of a company

To analyze the social impact of financial activities

To identify similarities, differences, and trends in financial statements (correct)

To calculate the total assets of an entity

Which standard is used to compare the financial statement of an entity with its direct competitor?

Intercomparability standard

Industry standard

Horizontal analysis

Intracomparability standard (correct)

What does the intercomparability standard indicate when comparing the financial statement of an entity in different periods?

The social responsibility initiatives undertaken by the entity

The market capitalization of the entity

The number of employees in the entity

Decreases and increases in certain accounts (correct)

Which tool is used to analyze a series of financial statement data over a period of time?

Horizontal analysis (A) Signup and view all the answers

What does the industry standard compare the financial statement of an entity with?

Its industry's standard average (C) Signup and view all the answers

Which standard is used to indicate whether an entity underperformed or overachieved compared to its direct competitor?

Intracomparability standard (B) Signup and view all the answers

What is the purpose of vertical analysis?

To analyze financial statement data in terms of percent of a base amount (C) Signup and view all the answers

What does horizontal analysis do?

Identifies positive and negative trends in financial data (A) Signup and view all the answers

In vertical analysis, what does it mean if owner’s equity has a higher percentage part of total assets than the percentage part of liabilities?

The entity's assets are financed more through equity financing (A) Signup and view all the answers

What is the formula for calculating the percentage increase or decrease of financial statement data?

$Percentage Change = (Current Year Amount - Base Year Amount) / Base Year Amount \times 100$ (A) Signup and view all the answers

What technique is used to express the relationship between selected items in the financial statement?

Ratio Analysis (D) Signup and view all the answers

Which method is used to analyze individual lines of financial statement data to a base line item?

Vertical Analysis (B) Signup and view all the answers

What does it indicate if an entity’s current assets comprise 58.33% of its total assets in a vertical analysis?

The entity's current assets are well-managed (B) Signup and view all the answers

What type of analysis is also called trend analysis?

Horizontal Analysis (C) Signup and view all the answers

In the computation of percentage change, what amount serves as the basis or the starting point of the comparison?

$Base year amount$ (C) Signup and view all the answers

Which item is used as the base line amount in a vertical analysis?

Total assets amount from the balance sheet (B) Signup and view all the answers