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    Question

    Which of the following is a limitation of financial

    statements?
    A They are based on historical costs. Correct Answer Incorrect Answer
    B They are prepared using consistent accounting policies. Correct Answer Incorrect Answer
    C They are audited by independent auditors. Correct Answer Incorrect Answer
    D They provide detailed segment information. Correct Answer Incorrect Answer
    E They reflect the current market value of assets. Correct Answer Incorrect Answer

    Solution

    Financial statements record assets at their original cost of acquisition (historical cost), which may not reflect their current fair market value, especially during inflationary periods.

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