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Question from Kaplan

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Question from Kaplan

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
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  • June 4, 2022 at 6:15 pm #657376
    maximus07
    Participant
    • Topics: 446
    • Replies: 437
    • ☆☆☆☆

    Identify whether each of the following is a limitation of applying ratio analysis to published financial statements or not.

    (i) Limitation
    (ii) Not a limitation

    A) Financial statements often use historic cost, meaning that inflation is not taken into account

    B) Complex items may not fit into any accounting standards and therefore may be omitted from the financial statements

    Answer is A is limitation and B is not.

    I studied in Regulatory Framework Measurement of kaplan book which said that historical cost has problem of inflation but it can be avoided through Control Purchase Price (CPP) or/and Current Cost Accounting (CCA). So how are we saying it is limitation as we can tackle this issue.

    June 5, 2022 at 9:46 am #657424
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6706
    • ☆☆☆☆☆

    Hi,

    The key is that accounts do not use these possible solutions and hence is a limitation.

    Thanks

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