CFA Practice Question

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CFA Practice Question

Inflation has a tendency to ______ revenue and ______ plants and equipment.

A. overstate; understate
B. understate; overstate
C. not affect; overstate
Correct Answer: A

User Contributed Comments 4

User Comment
moma20 what is the meaning of understate plant and equipments?
gsuwp Understate the VALUE of fixed assets that are on the books at historical costs.
bobert The value or plant and equip will not be inflated, and in some cases depreciated, which will understate the value.

Revenue on the other hand will be overstated because inflation will lower the value of the money, but not the amount of it. This is an overstatement of revenue.
erinelize Thank you, bobert!
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