Question 6 mei I think option B correct hona cheyiye. But isme option C correct de rkha h. Plz explain this.
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Hi Chirag. Why do you think Option B is correct? Pls give your rationale behind it so that I can better understand.
Fisher was earlier using the equity method but, if it uses the acquisition method, then the PAT will remain the same under both the methods, but total assets would go up under the acquisition method, therefore ROA= PAT/ TA, if TA goes up the ratio would decrease.
In case of Net profit Margin which is = Net Profit/Sales, the PAT remains the same under both the methods but Sales under equity method would be lower as we don’t show the sales of the other company in equity method but in acquisition method, sales would go up resulting in a decrease in the Net Profit Margin. Therefore, answer is option C.