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ACCA Applied Skills · Financial Reporting · Limitations of financial statements

Which statement best describes why year-end statement of financial position figures may mislead when calculating a receivables collection period for a seasonal business?

Year-end balances may not represent average levels during the year, since a seasonal business may have its year end at a peak or trough in trading. Ratios such as the receivables collection period based on closing figures can therefore be distorted.

  1. AReceivables are always measured at fair value so ratios are unaffected
  2. BYear-end balances may not be representative of average levels during the year, as the year end may fall at a seasonal peak or troughCorrect
  3. CIFRS prohibits the disclosure of credit sales
  4. DCollection period can only be calculated using cash sales

Explanation

Ratios use a single closing balance, which may be unrepresentative for seasonal businesses, for example when the year end follows a sales peak. The other options are factually incorrect about IFRS.

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