Question

What is (are) the main problems in using a balance sheet to provide an accurate assessment of the value of a company's equity?

A) Valuable assets such as the company's reputation, the quality of its work force, and the strength of its management are not captured on the balance sheet.
B) The balance sheet does not accurately represent the book value of assets held by the company.
C) The equity shown on the balance sheet does not reflect the market capitalization of the company.
D) Knowing at a single point in time what assets a firm possesses and the liabilities a firm owes does not give any indication of what those assets can produce in the future.

Answer 1

A) Valuable assets such as the company's reputation, the quality of its work force, and the strength of its management are not captured on the balance sheet.

Step-by-step explanation:

As we know that the balance sheet records the assets, liabilities and the equity of the company. Now the main problem with the balance sheet is that the valuable assets such as reputation of the company, work force quality, management strength would not captured here as it only records the monetary transactions.

Therefore the correct option is a.