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Which of the following is true about the impact of price inflation on financial ratio analysis?
A. Inflation impacts financial ratio analysis for one entity overtime, as well as comparative analysis of entities of different ages.
B. Inflation impacts only those ratios computed from balance sheet accounts.
C. Inflation impacts financial ratio analysis for one entity over time, but not comparative analysis of entities of different ages.
D. Inflation impacts comparative analysis of entities of different ages, but not financial ratio analysis for one entity over time.
Answer: A
Explanation:
Inflation has considerable impact on financial ratio analysis. This impact distorts both analysis of a single entity overtime and comparative analysis of different aged entities. During the year ended December 31. an entity had US $500,000 in sales revenue and purchased US $150,000 of inventory. The cost of goods sold was US $250,000 for the year. and the entity incurred US $ 25.000 of general and administrative expenses. The January 1 opening balance sheet was as follows:
The cost of long-term debt financing is 10% per annum, payable in one installment on December 31 of each year. The entity has a 50% tax rate. The entity has a dividend payout ratio of 25%. The fixed assets were 1-year old at the start of the current year. Were originally estimated to have a 6-year useful life. and are being depreciated on the straight-line basis.
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--------10-------20-------30
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B. Option D
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Which kind of risk treatment control is described here?
A. Transfer
B. Accept
C. Reduce
D. Avoid
Answer: A
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Feedbacks
Aalk - 2014-05-05 16:45:18
Plato - 2014-05-05 16:45:51
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Eleanore - 2014-09-28 16:36:48