Question : Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): The limitations of financial statements also form the limitations of the ratio analysis.

Reason (R): Since the ratios are derived from the financial statements, any weakness in the original financial statements will also creep in the derived analysis in the form of Accounting Ratios.
Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
Option 3: Assertion (A) is true but Reason (R) is False
Option 4: Assertion (A) is false but Reason (R) is true

Question

Question : Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): The limitations of financial statements also form the limitations of the ratio analysis.

Reason (R): Since the ratios are derived from the financial statements, any weakness in the original financial statements will also creep in the derived analysis in the form of Accounting Ratios.

Option 1: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Option 2: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Option 3: Assertion (A) is true but Reason (R) is False

Option 4: Assertion (A) is false but Reason (R) is true

Team Careers360 · Accepted Answer

Correct Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

Solution : Due to the fact that ratio analysis is derived from financial statements, any flaws in the original financial statements will also appear in the derived analysis. As a result, the limits of the ratio analysis are likewise limitations of the financial statements.

Hence the correct answer is option 1.

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