CA Foundation · Accounting · Theoretical Framework
Kiran & Co. has two users of its financial statements: a bank considering a loan and the existing owner. Which statement about the information needs served by accounting is most accurate?
Lenders mainly want to know whether the business can pay interest and repay the loan, while owners focus on profitability and the financial position of their investment. Accounting serves these differing needs, not just tax requirements.
- ALenders mainly need information about the ability of the business to pay interest and repay the loan, while owners focus on profitability and financial positionCorrect
- BLenders are interested only in the owner's drawings and not in cash flows
- COwners need information only about tax payable, whereas lenders need information about sales promotion
- DBoth users need only the information that is prepared for the tax authorities
Explanation
Lenders assess the ability to service and repay debt, which relates to liquidity and solvency. Owners are concerned with profitability and the value of their investment. The other options misstate these needs.
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