{"id":202030,"date":"2025-03-17T06:43:27","date_gmt":"2025-03-17T06:43:27","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=202030"},"modified":"2025-03-17T06:43:30","modified_gmt":"2025-03-17T06:43:30","slug":"when-a-horizontal-analysis-is-performed-and-a-zero-or-negative-amount-is-reported-in-the-base-year-2","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/03\/17\/when-a-horizontal-analysis-is-performed-and-a-zero-or-negative-amount-is-reported-in-the-base-year-2\/","title":{"rendered":"When a horizontal analysis is performed and a zero or negative amount is reported in the base year"},"content":{"rendered":"\n

When a horizontal analysis is performed and a zero or negative amount is reported in the base year, then<\/p>\n\n\n\n

a. no percentage change can be computed.
b. the percent change will be negative.
c. the accountant has made a mistake.
d. the percentage change will be 100% or greater.<\/p>\n\n\n\n

The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n

Correct Answer:<\/h3>\n\n\n\n

a. no percentage change can be computed.<\/strong><\/p>\n\n\n\n

Explanation:<\/h3>\n\n\n\n

Horizontal analysis, also known as trend analysis, is a financial analysis technique that compares financial statement data across multiple periods to identify trends and changes over time. The process typically involves calculating the percentage change from a base year to a comparison year using the following formula:<\/p>\n\n\n\n

[
\\text{Percentage Change} = \\left( \\frac{\\text{Current Year Value} – \\text{Base Year Value}}{\\text{Base Year Value}} \\right) \\times 100
]<\/p>\n\n\n\n

However, when the base year value is zero or negative, this formula becomes problematic for the following reasons:<\/p>\n\n\n\n

    \n
  1. Division by Zero Issue<\/strong><\/li>\n<\/ol>\n\n\n\n
      \n
    • If the base year value is zero, the denominator in the percentage change formula becomes zero. In mathematics, division by zero is undefined, meaning no valid percentage change can be computed.<\/li>\n<\/ul>\n\n\n\n
        \n
      1. Negative Base Year Values<\/strong><\/li>\n<\/ol>\n\n\n\n
          \n
        • If the base year value is negative, the percentage change formula results in misleading or non-meaningful results. For example, if the base year shows a loss (negative value) and the current year reports a positive amount, the percentage change calculation may suggest an unrealistic or infinite increase, making the analysis unreliable.<\/li>\n<\/ul>\n\n\n\n
            \n
          1. Accounting Principles and Interpretation<\/strong><\/li>\n<\/ol>\n\n\n\n
              \n
            • When a company reports a zero or negative value in a base year, analysts typically look at absolute changes rather than percentage changes. They may analyze trends qualitatively instead of mathematically computing percentages.<\/li>\n<\/ul>\n\n\n\n

              Thus, the correct answer is option (a): no percentage change can be computed<\/strong>, because attempting to calculate a percentage change with a zero or negative base year value leads to undefined or misleading results.<\/p>\n","protected":false},"excerpt":{"rendered":"

              When a horizontal analysis is performed and a zero or negative amount is reported in the base year, then a. no percentage change can be computed.b. the percent change will be negative.c. the accountant has made a mistake.d. the percentage change will be 100% or greater. The correct answer and explanation is : Correct Answer: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-202030","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/202030","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=202030"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/202030\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=202030"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=202030"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=202030"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}