Which one of the following ratio and trend analysis procedures might identify a possible misstatement of expensing amounts that should be capital items?
A) Compare 'depreciation expense divided by gross property, plant, and equipment cost' with previous years.
B) Compare 'monthly or annual repairs and maintenance, supplies expense, small tools expense, and similar accounts' with previous years.
C) Compare 'accumulated depreciation divided by gross property, plant, and equipment cost' with previous years.
D) Compare 'gross property, plant, and cost divided by some method of production' with previous years.

Question

Quizplus · Accepted Answer

Option B compares expenses like repairs and maintenance, supplies expense with previous years, which can identify a possible misstatement of expensing amounts that should be capital items. These expenses should decrease or remain constant with time, but if they increase, it may indicate that some capital items are being expensed. The other options are not suitable for identifying possible misstatements in expensing amounts that should be capital items.

Which One of the Following Ratio and Trend Analysis Procedures