alleryStart learning →Why can depreciation on historical cost alone lead to excessive dividends when prices rise?
AIt shows inflated profits
BIt shows understated sales
CIt raises the value of stock
DIt cancels the tax liability
Answer & Solution
Correct answer: A. It shows inflated profits
Depreciation based on historical cost is too low in a period of rising prices, so profits look inflated and too much is paid out.
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