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What is the main difference between the simple average profit method and the weighted average profit method?
- a)Simple average method uses future maintainable profits.
- b)Weighted average method considers non-recurring income.
- c)Simple average method uses past years' profits equally.
- d)Weighted average method assigns different weights to different years' profits.
Correct answer is option 'D'. Can you explain this answer?
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What is the main difference between the simple average profit method a...
The weighted average profit method assigns different weights to past years' profits for a more accurate valuation of goodwill.
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Difference Between Simple Average Profit Method and Weighted Average Profit Method
The Simple Average Profit Method and the Weighted Average Profit Method are two techniques used in financial analysis to assess a company's profitability. The key distinction lies in how they treat past profits.
Simple Average Profit Method
- This method calculates profits by taking the arithmetic mean of profits over a specific period.
- Each year’s profit is given equal importance.
- It does not account for any variations in profitability across different years, leading to a simplistic view.
Weighted Average Profit Method
- In contrast, this method assigns different weights to profits from different years.
- Typically, more recent years may be given greater weight, reflecting their relevance to future profitability.
- This approach allows for a nuanced understanding of a company's performance, as it recognizes that not all profits are equally significant.
Key Insights
- The weighted method can be particularly useful when assessing a business undergoing changes, such as expansion or contraction.
- It can factor in the impact of non-recurring income or losses, which may skew results if treated equally.
- Consequently, the weighted average method provides a more accurate representation of a company's future earning potential.
In summary, the main difference is that the Simple Average Method treats all historical profits equally, while the Weighted Average Method assigns differing significance to profits from various years, making it a more sophisticated approach for financial analysis.
The Simple Average Profit Method and the Weighted Average Profit Method are two techniques used in financial analysis to assess a company's profitability. The key distinction lies in how they treat past profits.
Simple Average Profit Method
- This method calculates profits by taking the arithmetic mean of profits over a specific period.
- Each year’s profit is given equal importance.
- It does not account for any variations in profitability across different years, leading to a simplistic view.
Weighted Average Profit Method
- In contrast, this method assigns different weights to profits from different years.
- Typically, more recent years may be given greater weight, reflecting their relevance to future profitability.
- This approach allows for a nuanced understanding of a company's performance, as it recognizes that not all profits are equally significant.
Key Insights
- The weighted method can be particularly useful when assessing a business undergoing changes, such as expansion or contraction.
- It can factor in the impact of non-recurring income or losses, which may skew results if treated equally.
- Consequently, the weighted average method provides a more accurate representation of a company's future earning potential.
In summary, the main difference is that the Simple Average Method treats all historical profits equally, while the Weighted Average Method assigns differing significance to profits from various years, making it a more sophisticated approach for financial analysis.
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What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer?
Question Description
What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer?.
What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer?.
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What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer?, a detailed solution for What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer? has been provided alongside types of What is the main difference between the simple average profit method and the weighted average profit method?a)Simple average method uses future maintainable profits.b)Weighted average method considers non-recurring income.c)Simple average method uses past years' profits equally.d)Weighted average method assigns different weights to different years' profits.Correct answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
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