Q4. Assume a simple service firm earns only service revenue and incurs depreciation as its most significant expense. In the current year, there is 3 percent inflation. However, due to government regulations, the firm is unable to pass on any of the inflation to its customers. In real terms, the firm’s net income is: ffice ffice" />
A) correctly stated.
B) overstated.
C) understated.
Correct answer is A)
Depreciation expense is an example of historical cost accounting (no inflation taken into account). If there is also no inflation reflected in the service revenue, then from an economic and real standpoint, the net income is correctly stated. | 
发表于 2009-5-26 20:52
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