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A business owner is selling their business - HSC - SSCE Business Studies - Question 17 - 2024 - Paper 1
Question 17
A business owner is selling their business. If the business owner is unethical, what may they be motivated to do? A. Undervalue assets and undervalue liabilities B.... show full transcript
Worked Solution & Example Answer:A business owner is selling their business - HSC - SSCE Business Studies - Question 17 - 2024 - Paper 1
Step 1
If the business owner is unethical, what may they be motivated to do?
Answer
In the context of unethical behavior by a business owner, one common motivation would be to present the business in a more favorable light to maximize its selling price. This can be achieved by overstating the income and understating expenses.
Explanation:
- Overstating Income: This involves inflating revenues on financial statements. By showing higher income, the business appears more profitable, enticing potential buyers.
- Understating Expenses: This is the practice of minimizing recorded costs. Lower expenses contribute to a higher profit margin, further enhancing the perceived value of the business.
Thus, option D ('Overstate income and understate expenses') reflects this unethical motivation accurately.