The correct answer is Option (2) → A, C & D only
The book lists among the limitations of financial statements that they may be biased (A), they show only aggregate information (C), and they are only interim reports (D) for a period, not a picture of earning capacity over time.
Report on stewardship function (B) and basis for fiscal policies (E) are listed by the book as uses of financial statements, not limitations.
NCERT (2026-27 edition):
Limitations of Financial Statements – “… Bias: Financial statements are the outcome of recorded facts, accounting concepts and conventions used and personal judgements made in different situations by the accountants. Hence, bias may be observed in the results, and the financial position depicted in financial statements may not be realistic. Aggregate information: Financial statements show aggregate information but not detailed information.” NCERT (2026-27 edition):
Limitations of Financial Statements – “… They are only interim reports: Statement of Profit and Loss discloses the profit/loss for a specified period.” NCERT (2026-27 edition):
Uses and Importance of Financial Statements – “… 1. Report on stewardship function: Financial statements report the performance of the management to the shareholders. The gaps between the management performance and ownership expectations can be understood with the help of financial statements. 2. Basis for fiscal policies: The fiscal policies, particularly taxation policies of the government, are related with the financial performance of corporate undertakings. The financial statements provide basic input for industrial, taxation and other economic policies of the government.” |
