The audit significance of the financial ratio, fixed asset turnover, is: A) this financial ratio provides a reasonableness test of the entity's proportion of equity that may be compared with prior years' experience or industry data. B) an unexpected increase or decrease in the depreciation expense as a percent of depreciable assets may indicate an error in calculating depreciation. C) an unexpected increase in this financial ratio may indicate the failure to record or capitalize depreciable assets. D) this financial ratio provides a test of the entity's ability to generate earnings to cover the cost of service debt. E) this financial ratio provides a reasonableness test of shareholders' equity given the company's earnings and financing structure.

Question

Quizplus · Accepted Answer

An unexpected increase in the fixed asset turnover ratio could suggest that a company has not recorded or capitalized depreciable assets properly, as this ratio measures how efficiently a company uses its fixed assets to generate sales.

The Audit Significance of the Financial Ratio, Fixed Asset Turnover