Understanding the Fisher Ideal Formula
The Fisher Ideal Formula is a method used in index number theory for measuring the changes in price and quantity over time. It is considered a "dual" index because it accounts for both price and quantity changes simultaneously.

Limitations of the Fisher Ideal Formula
While the Fisher Ideal Formula is widely recognized for its strengths, it does not satisfy certain tests used to evaluate index numbers. One notable limitation is its failure to meet the Circular Test.

What is the Circular Test?
The Circular Test examines whether the index number maintains consistency when the base and current periods are cycled through. Specifically, if you take three periods (A, B, and C), the index from A to C should equal the product of the index from A to B and the index from B to C.

Why Fisher Fails the Circular Test?
The Fisher Ideal Formula is based on geometric averages of the price and quantity indices. This method does not ensure that the indices will satisfy the circularity condition due to potential inconsistencies arising from the averaging process. Consequently, the result might not hold true when transitioning between multiple periods, leading to discrepancies.

Conclusion
In summary, the Fisher Ideal Formula is a robust approach to index number calculation, but it does not satisfy the Circular Test. This characteristic is crucial for students of economics and accounting, particularly in the CA Foundation curriculum, as it highlights the limitations of various index number methodologies.

Key Takeaway:
- The correct answer to the question is option 'B' - Circular Test.