CUET Preparation Today
Which one of the following is a limitation of financial statements? |
Bias may be observed in the results, and the financial position depicted in financial statements may not be realistic Accounting is done on the basis of certain conventions. Some of the assets may not realise the stated values, if the liquidation is forced on the company Balance sheet does not disclose information relating to loss of markets, and cessation of agreements, which have vital bearing on the enterprise All of the above |
All of the above |
The correct answer is option 4- All of the above. All of the above are limitation of financial statements. Do not reflect current situation: Financial statements are prepared on the basis of historical cost. Since the purchasing power of money is changing, the values of assets and liabilities shown in financial statement do not reflect current market situation. Assets may not realise: Accounting is done on the basis of certain conventions. Some of the assets may not realise the stated values, if the liquidation is forced on the company. Assets shown in the balance sheet reflect merely unexpired or unamortised cost. 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. Vital information missing: Balance sheet does not disclose information relating to loss of markets, and cessation of agreements, which have vital bearing on the enterprise. |
