Estimations Are Frequently Made in the Financial Statements in Relation

question 32

Multiple Choice

Estimations are frequently made in the financial statements in relation to items such as bad debts,inventory obsolescence,an asset's useful life and the expected pattern of consumption of economic benefits of depreciable assets.The effect of these estimations on the financial statements is to:

• A) increase the variability of profits.
• B) make the statement unreliable.
• C) reduce the relevance of the profit figures reported.
• D) None of the given answers are correct.

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Definitions:

Warranty Costs

Expenses associated with repairing or replacing products under warranty, recognized as part of product support costs.

Product Returns

Items that are sent back to the seller by the purchaser due to defects, dissatisfaction, or other reasons.

Variable Selling

Costs associated with selling activities that fluctuate with the level of sales, such as commissions and shipping charges.

Income Statements

Financial documents summarizing a company's revenues, expenses, and profits over a specific period, showing its financial performance.