Which of the following is potentially a problem associated with historical cost-based financial statements in periods of inflation?
A)Asset understatement
B)Overpayment of income taxes
C)Overstated income
D)All of the above are potential problems

Question

Quizplus · Accepted Answer

In periods of inflation, the historical cost-based financial statements may not reflect the current value of assets, resulting in asset understatement. This could also lead to overstated income due to the failure to adjust for inflation, which might result in overpayment of income taxes. Hence, all of the above are potential problems associated with historical cost-based financial statements in periods of inflation.

Which of the Following Is Potentially a Problem Associated with Historical