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Questions and Answers
Which statement explains a reason why year-end data may not be typical of the entity's position during the year?
Which statement explains a reason why year-end data may not be typical of the entity's position during the year?
- Financial year-end coincides with a low point of activity in the operating cycle.
- The existence of certain transactions entered into near the end of the year to improve ratios. (correct)
- Lack of disclosure in general purpose financial reports inhibits analysis.
- One-off items like losses from floods are included in the financial reports.
Why might the current ratio be artificially improved near the year-end?
Why might the current ratio be artificially improved near the year-end?
- By understating inventory levels.
- By excluding one-off items from the financial statement.
- By using cash to pay off short-term debt. (correct)
- By increasing payables and reducing receivables.
What impact do one-off, non-recurring items like losses through floods have on trend analysis?
What impact do one-off, non-recurring items like losses through floods have on trend analysis?
- They are considered insignificant for comparison between entities.
- They inhibit the determination of trends in assessing business efficiency. (correct)
- They are excluded from profitability calculations.
- They must be included in all ratios for meaningful analysis.
Why should analysts consider modifications, supplementations, and qualifications in accompanying documents for analysis and interpretation?
Why should analysts consider modifications, supplementations, and qualifications in accompanying documents for analysis and interpretation?
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What factor makes entities less comparable according to the text?
What factor makes entities less comparable according to the text?
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