Quartile Co is in the jewellery retail business which can be assumed to be highly seasonal. For the year ended 30 September 20X5, Quartile Co assessed its operating performance by comparing selected accounting ratios with those of its business sector average as provided by an agency.
Assume that the business sector used by the agency is a meaningful representation of Quartile Co's business.
Which TWO of the following circumstances may invalidate the comparison of Quartile Co's ratios with those of the sector average?
In the current year, Quartile Co has experienced significant rising costs for its purchases
The sector average figures are compiled from companies whose year ends are between 1 July 20X5 and 30 September 20X5
Quartile Co does not revalue its properties, but is aware that other entities in this sector do
During the year, Quartile Co discovered an error relating to the inventory count at 30 September 20X4. This error was correctly accounted for in the financial statements for the current year ended 30 September 20X5
Solution:
The correct answers are:
• The sector average figures are compiled from companies whose year ends are between 1 July 20X5 and 30 September 20X5
• Quartile Co does not revalue its properties, but is aware that other entities in this sector do
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