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A hairdresser includes proceeds of the sale of salon equipment in the business's income statement - HSC - SSCE Business Studies - Question 14 - 2020 - Paper 1
Question 14
A hairdresser includes proceeds of the sale of salon equipment in the business's income statement. Which limitation of financial reporting is evident? A. Timing issu... show full transcript
Worked Solution & Example Answer:A hairdresser includes proceeds of the sale of salon equipment in the business's income statement - HSC - SSCE Business Studies - Question 14 - 2020 - Paper 1
Step 1
Which limitation of financial reporting is evident?
Answer
In this situation, the evident limitation of financial reporting relates to Normalised earnings. Normalised earnings refer to adjustments made to earnings to eliminate the effects of irregularities or non-recurring transactions. The inclusion of proceeds from the sale of salon equipment in the income statement may distort the true operational performance of the business. This is because such proceeds are not part of the normal service revenue generated from hairdressing services, and reporting them may lead to misleading interpretations of the earnings performance over time.