In: Accounting
Which of the following is a limitation of consolidated financial statements?
Consolidated financial can mask the performance of weaker companies. |
Ratios and percentages derived from consolidated financial statements can be deceptive because they are composite (weighted) averages. |
Consolidated statements can eliminate detail about product lines, divisional operations, and the relative profitability of various business segments |
Answers “a” and “b” only |
All of these are limitations of consolidated financial statements. |
Answer is point number 1 - Consolidated financial can mask the performance of weaker companies.
Point number 2 is not a limitation as ratios and percentages derived from consolidated financial statements are not based on composite (weighted) averages.
Point number 3 is also not a limitation as consolidated financial statements required segment information which would disclose the product lines, divisional operations and relative profitability of various business segments.