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ACCA Applied Knowledge · Financial Accounting · Importance and purpose of analysis of financial statements

Revenue was $400,000 in Year 1, $440,000 in Year 2 and $484,000 in Year 3. Using Year 1 as the base year (index 100), what is the index number for Year 3?

The Year 3 index is 121, calculated as 484,000 divided by the base-year revenue of 400,000, times 100. The figure 110 is the Year 2 index, and 84 is merely the absolute increase in thousands rather than an index number.

  1. A110
  2. B121Correct
  3. C84
  4. D100

Explanation

Index = 484,000/400,000 x 100 = 121. Year 2 would be 110. The figure 84 is the absolute increase in thousands (484-400), not an index. Index numbers are always measured against the base year, not the prior year.

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