If a balance sheet is subjected to vertical analysis which shows that current assets (using total assets as the base) have increased from 42% to 56%, this would always mean that:
A) current assets have increased as a percentage of total assets.
B) the dollar amount of total assets has increased.
C) the dollar amount of total assets has decreased.
D) the dollar amount of current assets has increased.

Question

Quizplus · Accepted Answer

Vertical analysis expresses each item on a financial statement as a percentage of a base amount, such as total assets. In this case, the increase from 42% to 56% means that current assets have increased as a percentage of total assets, which could be due to an increase in the dollar amount of current assets or a decrease in the dollar amount of other assets. However, the given information does not provide any indication of the dollar amount of total assets or current assets, so options B and D cannot be conclusively determined. Option C, which suggests a decrease in the dollar amount of total assets, is inconsistent with the increase in the percentage of current assets, as this would normally result in a decrease in the percentage of current assets.

If a Balance Sheet Is Subjected to Vertical Analysis Which