Class 12 Accountancy Part 2 Chapter 4 NCERT Solutions: Analysis of Financial Statements

Analysis of Financial Statements takes the Balance Sheet and Statement of Profit and Loss prepared in the previous chapter and turns them into something a decision-maker can actually act on. Questions here typically ask you to convert absolute figures into percentage changes across two years, express each item as a percentage of a common base like Revenue from Operations or Total Assets, or track a series of years to spot a rising or falling pattern.

The tricky part is that a small calculation slip early on say, in the base figure you choose throws off every later percentage. The Part 2 Chapter 4 Accountancy Solutions below solve such questions step by step, so you can check where your own working matches or drifts from the expected approach.

Important Numericals: Analysis of Financial Statements Class 12 NCERT Solutions

The following solutions cover important questions from Chapter 4. Attempt each one yourself before checking the solution below.

Question 1

Revenue from Operations of a company was Rs. 8,00,000 in 2023 and Rs. 10,00,000 in 2024. Calculate the absolute change and the percentage change.

Solution:

Absolute Change:
= 10,00,000 − 8,00,000 = Rs. 2,00,000

Percentage Change:
= (2,00,000 ÷ 8,00,000) × 100
= 25%

Answer: Revenue from Operations increased by Rs. 2,00,000, a rise of 25% over the previous year.

Question 2

A company's Total Assets stood at Rs. 40,00,000, of which Fixed Assets were Rs. 24,00,000. Express Fixed Assets as a percentage of Total Assets under a common size statement.

Solution:

Percentage of Fixed Assets to Total Assets:
= (24,00,000 ÷ 40,00,000) × 100
= 60%

Answer: Fixed Assets form 60% of Total Assets, meaning Current Assets and other items together make up the remaining 40%.

Question 3

Employee Benefit Expenses were Rs. 3,00,000 in the base year and Rs. 3,90,000 in the following year. Calculate the trend percentage, taking the base year as 100.

Solution:

Trend Percentage:
= (3,90,000 ÷ 3,00,000) × 100
= 130%

Answer: Employee Benefit Expenses rose to 130% of the base year figure, an increase of 30%.

Question 4

Explain briefly what a Comparative Statement is and why a company would prepare one instead of relying only on a single year's figures.

Solution:

A Comparative Statement places the figures of two or more accounting periods side by side, along with the absolute and percentage change between them. A single year's figures only show where a company stands at one point in time, whereas a Comparative Statement shows the direction a company is moving in, letting management and outside readers judge whether performance is improving, stagnant, or declining.

Question 5

A company's Net Profit was Rs. 6,00,000 and its Revenue from Operations was Rs. 60,00,000. Show Net Profit as a percentage of Revenue from Operations in a common size Statement of Profit and Loss.

Solution:

Percentage of Net Profit to Revenue from Operations:
= (6,00,000 ÷ 60,00,000) × 100
= 10%

Answer: Net Profit represents 10% of Revenue from Operations, meaning the remaining 90% was absorbed by costs and expenses of various kinds.

Question 6

State two limitations of Analysis of Financial Statements that a student should keep in mind while interpreting the results.

Solution:

One limitation is that the analysis relies entirely on historical figures recorded at cost, so it may not reflect the current market value or replacement cost of assets. A second limitation is that financial statements can be affected by the accounting policies a company chooses, such as the method used for depreciation or inventory valuation, which makes comparison between two companies less reliable unless their policies are similar.

Question 7

In a Comparative Balance Sheet, Trade Payables increased from Rs. 2,50,000 to Rs. 3,00,000. Calculate the percentage change, and briefly explain what an increase of this kind may indicate.

Solution:

Percentage Change:
= [(3,00,000 − 2,50,000) ÷ 2,50,000] × 100
= 20%

Answer: Trade Payables rose by 20%. This could indicate the company is taking longer to pay its suppliers, relying more on trade credit for working capital, or simply that purchases have grown in line with expanded operations, so the figure needs to be read alongside sales and purchase data rather than in isolation.

Question 8

Name the two tools of financial statement analysis that involve comparing figures across time, and briefly distinguish between them.

Solution:

The two tools are Comparative Statements and Trend Analysis. A Comparative Statement typically compares figures across two consecutive years, showing the absolute and percentage change between them, while Trend Analysis is used over a longer series of years, with the earliest year taken as the base of 100 and every subsequent year expressed as a percentage of that base, making it easier to spot a longer-term pattern rather than just a one-year movement.

Question 9

A company's Cost of Materials Consumed was 45% of Revenue from Operations in a common size statement for one year and 52% in the following year, with Revenue from Operations remaining almost unchanged. What does this shift suggest about the company's performance?

Solution:

Since Revenue from Operations remained largely the same but the Cost of Materials Consumed rose from 45% to 52% of that revenue, the company's material costs grew faster than its sales. This points to either rising input prices, inefficient use of materials, or reduced pricing power, and it would likely have pulled down the company's gross profit margin for the year even if total revenue looked stable.

Question 10

Distinguish between Intra-firm Comparison and Inter-firm Comparison as objectives of Analysis of Financial Statements.

Solution:

Intra-firm Comparison involves comparing a company's own financial statements across different years to judge whether its performance is improving or declining over time. Inter-firm Comparison, on the other hand, involves comparing one company's financial statements with those of another company in the same industry, which helps assess how well a company is performing relative to its competitors rather than only against its own past record.

Analysis of Financial Statements Class 12 NCERT Solutions PDF

If you want to revise all the selected solutions together, you can use the Class 12 Accountancy Part 2 Chapter 4 NCERT Solutions PDF. Download the PDF and refer to the detailed solutions while practising the chapter.

How to Use Chapter 4 Accountancy NCERT Solutions for Revision?

Solving the questions yourself before checking the solutions can make your revision more useful.

• Attempt Before Checking: Try each numerical on your own before referring to the solution.

• Check the Adjustments: Pay attention to how goodwill, revaluation, reserves, and other adjustments are treated.

• Understand the Working Notes: Do not skip the calculations used to arrive at the final amount.

• Review Your Mistakes: Compare your working with the solution and identify where your approach differed.

• Practise Similar Questions: After understanding a solution, attempt another question based on the same concept

Practising these questions can help you get comfortable moving between absolute figures, percentages, and the interpretation those percentages call for.

Use the Chapter 4 Accountancy NCERT Solutions to check your calculations, understand the interpretation behind each figure, and revise the chapter before your exams.