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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
Overstate income and understate expenses
Answer
In the context of unethical behavior when selling a business, the owner may be motivated to misrepresent the financial health of the business to increase its sale price. Overstating income makes the business appear more profitable, while understating expenses presents a higher net income than what actually exists. This manipulation can create an illusion of a more financially stable company, thereby attracting potential buyers willing to pay a premium.