Inflation accounting is favored by modern financial analysts over the historical cost accounting as historical cost accounting suffers from the following disadvantage/s a. Understated depreciation and understated cost of sales lead to overstatement of profits, compounded by price inflation b. Understatement of assets will depress a company s share price and make it vulnerable to takeover c. All the given statements are the disadvantages of historical cost accounting that lead to favor inflation accounting. d. Overstated profits can lead to too much being distributed to shareholders, leaving insufficient amounts for investments.

Inflation accounting is favored by modern financial analysts over the historical cost accounting as historical cost accounting suffers from the following disadvantage/s a. Understated depreciation and understated cost of sales lead to overstatement of profits, compounded by price inflation b. Understatement of assets will depress a company s share price and make it vulnerable to takeover c. All the given statements are the disadvantages of historical cost accounting that lead to favor inflation accounting. d. Overstated profits can lead to too much being distributed to shareholders, leaving insufficient amounts for investments.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 11QE

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Proponents of the use of Fair Value Accounting (FVA) argue that the use of fair value reflects current market conditions. On the contrary, opponents of the FVA argue that under specific circumstances, such as a financial crisis, mark to market accounting may lead to considerable volatility in the financial statements and especially the Income Statement (Laux and Leuz, 2009). Critically discuss the merits and flaws of FVA in relation to cost accounting.
The weak-form of EMH implies which of the following may be used to earn an abnormal return and beat the market(a) Technical analysis using all past price information (b) Fundamental analysis using company accounts’ data (c) Insider trading (d) Both answers B and C
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