Problems In Balance Sheet Presentation - Financial Reporting and Analysis

Problems on Balance Sheet

Numerous problems inherent in balance sheet presentation may cause difficulty in analysis. First, many assets are valued at cost, so one cannot determine the market value or replacement cost of many assets and should not assume that their balance sheet amount approximates current valuation.

Second, varying methods are used for asset valuation. For example, inventories may be valued differently from firm to firm and, within a firm, from product to product. Similar problems exist with long-term asset valuation and the related depreciation alternatives. A different type of problem exists in that not all items of value to the firm are included as assets. For example, such characteristics as good employees, outstanding management,and a well - chosen location do not appear on the balance sheet. These problems do not make statement analysis impossible. They merely require that qualitative judgment be applied to quantitative data in order to assess the impact of these problem areas.


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