Question #33
Reading: Reading 23 Residual Income Valuation
PDF File: Reading 23 Residual Income Valuation.pdf
Page: 19
Status: Incorrect
Correct Answer: B
Your Answer: B
Part of Context Group: Q32-33
Shared Context
Question
Binkster's comment is best described as:
Answer Choices:
A. correct
B. incorrect as gains or losses should not be adjusted
C. incorrect as the book value of equity should be adjusted
Explanation
Binkster comment relates to the treatment of non-recurring items. Future residual income
should be based on recurring items and therefore Binkster comment is correct. As the
gains or losses from one-off asset sales are non-recurring, these gains and losses should
be excluded when estimating residual income. However, there is no need to adjust the
book value of equity.