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SECTION B (20 marks). Answer all questions. QUESTION 1 (15 MARKS) The preparation and analysis of comparative balance sheets and income statements are commonly applied
SECTION B (20 marks). Answer all questions. QUESTION 1 (15 MARKS) The preparation and analysis of comparative balance sheets and income statements are commonly applied tools of financial statement analysis and interpretation. Required: a). Discuss the inherent limitations of analysing and interpreting financial statements for a single year. Include in your discussion the extent that these limitations are overcome by the use of comparative financial statements computed over more than one year. (10 marks) b). A year-to-year analysis of comparative balance sheets and income statements is a useful analysis tool. Still without proper care, such analysis can be misleading. Discuss factors or conditions that contribute to such a possibility. How can additional information and supplementary data (beyond financial statements) help prevent this possibility? (10 marks)
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