A limitation of the statement of financial position in portraying the financial position of an entity is:
A)items which cannot be measured in money are not included.
B)the historical cost approach means that assets are not shown at their estimated market values.
C)there is no adjustment to values for inflation.
D)All of the above are limitations.

Question

Quizplus · Accepted Answer

All of the statements listed are limitations of the statement of financial position. Items such as reputation, employee talent, and goodwill cannot be measured in money and are therefore not included. The historical cost approach means that assets such as property, plant, and equipment are shown at their original cost instead of their current estimated market value. Finally, there is no adjustment to financial values for inflation, so the financial position may appear better or worse than it actually is.

A Limitation of the Statement of Financial Position in Portraying