Two companies made similar acquisitions of fixed assets during the past year, yet one company consistently reports a lower amortization expense.This is an example of which of the following limitations of financial ratios?
A)Financial statements are historical.
B)Managers prepare financial statements.
C)Accounting policies and estimates affect ratios.
D)Financial statements are not the only source of information.

Question

Quizplus · Accepted Answer

This scenario highlights how accounting policies can affect ratios. Different companies may use different methods or estimates when it comes to calculating amortization expenses, which can impact the accuracy and comparability of financial ratios.

Two Companies Made Similar Acquisitions of Fixed Assets During the Past