Paper 2 · Ratio Analysis
Window dressing may also be used to
Alengthen the company's financial year
Bsatisfy loan covenants set by the company's bank
Creduce the dividend expected by its shareholders each year
Davoid the need to appoint external auditors
Explanation: Loan agreements commonly require the borrower to keep gearing or the current ratio within stated limits at the reporting date. Improving the figures on that one day can keep the company within the covenant and avoid the loan becoming repayable on demand.
Derived from ZIMSEC Business Enterprise Skills Paper 2, Specimen Paper, Q5