11.7 identifying the limitations of financial reporting (not assessed)

Question 1

Normalised Earnings

Answer 1

• Earning that have been adjusted to take into account changes in the economic cycle
  E.G. Removal of land sale, which would achieve a large capital gain

Question 2

Capitalising Expenses

Answer 2

• Cost incurred when financing a non-current asset
  E.G. Purchase of property has legal fees

Question 3

Valuing Assets

Answer 3

• Original cost of an asset on the balance sheet is different from its market value
• Assets appreciate and depireciate

Question 4

Timing Issues

Answer 4

• Accounts may adjust timing of cash inflow and outflow to make business appear profitable