Question

What assumptions should a company build to construct the Pro forma income statement?

Answer 1

The assumptions made while preparing a Pro forma income statement are as follows:

1) The management is allowed to exercise a certain amount of creativity and flexibility while preparing such statement.

2) Such statement are dynamic in nature thus changes is still possible and a variety of different alternatives can be followed.

3) It is assumed that the tax rate will remain constant.

4) All the rates applied for creating provisions for any known liability are flexible and may vary in real time.

5) The statements is based on future assumptions and are vulnerable to changes and inaccuracies.