Book value fails to reflect true value primarily because:
A)financial statements are irrelevant.
B)financial statements are backward-looking.
C)financial statements are forward-looking.
D)financial statements are typically biased.

Question

Quizplus · Accepted Answer

Book value is calculated based on historical cost, which may not reflect the current market value or economic value of the assets owned by the company. Therefore, it fails to reflect the true value of the company. This is because financial statements are backward-looking, focusing on past transactions and events, rather than predicting future outcomes.

Book Value Fails to Reflect True Value Primarily Because