Financial Statement Analysis 3

. The tools for studying industry economics do not include


The main advantage of using current values is increased relevance for financial statement users. The disadvantages include greater subjectivity.

 

 

160. Discuss the three ways in which GAAP allows value changes to be treated in the financial statements. Provide an example of each value change treatment.

 

Correct Answer:

1.
Value changes recognized on the balance sheet and the income statement when realized in a market transaction. Examples include selling inventory or land.
2.
Value changes recognized on the balance sheet when they occur, but recognized on the income statement when realized. Examples include marketable securities.
3.
Value changes recognized on the balance sheet and the income statement when they occur. Examples include impairment losses.
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