Financial Statements - II (Class 11 Accountancy)

Practise chapter-wise MCQs for Class 11 Accountancy — Financial Statements - II. Every question comes with the correct answer and an explanation.

Financial Statements - II (Class 11 Accountancy)

Practise chapter-wise MCQs for Class 11 Accountancy — Financial Statements - II. Every question comes with the correct answer and an explanation.

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TL;DR: Practise chapter-wise MCQs for Class 11 Accountancy — Financial Statements - II. Every question comes with the correct answer and an explanation.

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Practise chapter-wise MCQs for Class 11 Accountancy — Financial Statements - II. Every question comes with the correct answer and an explanation.

Financial Statements - II MCQs with Answers & Explanations

Q1. In the context of Ratio Analysis, a company's ability to meet its short-term obligations is primarily assessed by:

  1. Solvency Ratios
  2. Turnover Ratios
  3. Profitability Ratios
  4. Liquidity Ratios ✓ (correct)

Explanation: Liquidity ratios (like Current Ratio and Quick Ratio) are specifically designed to measure a company's ability to pay off its short-term debts.

Q2. The 'Net Profit Ratio' is a type of:

  1. Profitability Ratio ✓ (correct)
  2. Liquidity Ratio
  3. Solvency Ratio
  4. Activity Ratio

Explanation: The Net Profit Ratio measures the overall profitability of the business and is therefore categorized as a Profitability Ratio.

Q3. Which of the following is considered an external user of financial statements?

  1. Management
  2. Investors ✓ (correct)
  3. Production Manager
  4. Employees

Explanation: Investors are external parties who use financial statements to make decisions about investing in a company. Management, employees, and the production manager are internal users.

Q4. Contingent Liabilities are shown:

  1. They are not disclosed in the financial statements
  2. As a deduction from assets
  3. As a separate item in the notes to accounts ✓ (correct)
  4. As an addition to liabilities

Explanation: Contingent liabilities are potential obligations that may arise depending on future events. They are disclosed in the notes to accounts rather than on the face of the Balance Sheet.

Q5. If a company has a Current Ratio of 2:1, it means that its:

  1. Net profit is twice its total revenue
  2. Current liabilities are twice its current assets
  3. Fixed assets are twice its current liabilities
  4. Current assets are twice its current liabilities ✓ (correct)

Explanation: The Current Ratio is calculated as Current Assets / Current Liabilities. A ratio of 2:1 indicates that current assets are double the current liabilities.

Q6. Which of the following accounts represents a liability on the Balance Sheet?

  1. Interest Payable ✓ (correct)
  2. Land
  3. Accounts Receivable
  4. Prepaid Expenses

Explanation: Interest Payable is an expense that has been incurred but not yet paid, making it a short-term liability on the Balance Sheet.

Q7. The 'Cost of Goods Sold' is a crucial element in determining:

  1. Net Profit
  2. Gross Profit ✓ (correct)
  3. Operating Profit
  4. Net Worth

Explanation: Gross Profit is calculated as Sales Revenue minus the Cost of Goods Sold. Therefore, COGS is a direct determinant of Gross Profit.

Q8. Depreciation is shown as a deduction from the original cost of an asset in the Balance Sheet. This method is known as:

  1. Straight Line Method
  2. Written Down Value Method
  3. Provision for Depreciation Account ✓ (correct)
  4. None of the above

Explanation: When a Provision for Depreciation Account is maintained, accumulated depreciation is credited to this separate account and the asset continues to be shown at its original cost. Depreciation is then charged to the Profit and Loss Account.

Q9. The term 'Working Capital' in accounting refers to:

  1. Share Capital plus Reserves
  2. Fixed Assets minus Current Liabilities
  3. Current Assets minus Current Liabilities ✓ (correct)
  4. Total Assets minus Total Liabilities

Explanation: Working Capital is the difference between a company's current assets and its current liabilities. It represents the funds available for day-to-day operations.

Q10. Which of the following is NOT a component of a Balance Sheet?

  1. Liabilities
  2. Assets
  3. Capital
  4. Revenues ✓ (correct)

Explanation: Revenues are reported in the Income Statement, not the Balance Sheet. Assets, Liabilities, and Capital are the main components of the Balance Sheet.

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