Question : Financial Statement analysis ignores price level changes. It is its ………
Option 1: objective
Option 2: limitation
Option 3: either 1 and 2
Option 4: None of the above
Answer (1)
20th Jan, 2024
Correct Answer: limitation
Solution : Answer = limitation
Even though financial statements are a valuable tool, they also have certain limits. Since all of the company's assets are documented at cost, they are prepared based on historical cost.
The historical cost notion causes them to overlook changes in price levels.
Hence, the correct option is 2.
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