Limitations of Balance Sheet

Balance Sheet Limitations

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Question

Which of the following would not be a limitation of the balance sheet?

Answers

A. Long-lived assets may not reflect their market value because they are stated at historical cost.

B. Significant assets and liabilities may be omitted because GAAP does not require their inclusion.

C. GAAP permits companies to delay recognition of value changes, such as employee benefit plans.

D. Some assets and liabilities are carried at historical cost bearing little relationship to their real market value.

E. The firm's market value would not be able to be estimated due to historical costing.

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Explanations

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A. B. C. D. E.

The balance sheet does not report the market value of a firm's assets, liabilities, or equity, although the information provided can be useful when estimating the market value of the firm or its securities.

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