The Best Way to Adjust for the Presence of Fixed

question 61

True/False

The best way to adjust for the presence of fixed costs when using a simplified approach for pro forma income statement preparation is to break the firm's historical costs into fixed, semi-variable, and variable components and make the forecast using this relationship.

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Definitions:

Warranty Claims

Requests made by customers for the repair or replacement of products under the terms of a warranty agreement.

AASB 137

The Australian Accounting Standards Board standard that deals with Provisions, Contingent Liabilities, and Contingent Assets.

Provisions

Liabilities of uncertain timing or amount, recorded to account for future obligations or potential losses.

Contingent Liabilities

Possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.