Which of the following is potentially a problem associated with historical cost-based financial statements in periods of inflation?
A)asset understatement
B)overpayment of income taxes
C)overstated income
D)All of the above are potential problems.

Question

Quizplus · Accepted Answer

In periods of inflation, historical cost-based financial statements may lead to asset understatement, overpayment of income taxes, and overstated income. This is because the historical cost of assets may not reflect their current value due to inflation, which means that the financial statements may not accurately reflect the true financial position of the company. Additionally, the overstated income resulting from the failure to account for the effects of inflation may lead to overpayment of income taxes.

Which of the Following Is Potentially a Problem Associated with Historical