Answer
The major limitations of the balance sheet as a source of financial information incorporate:
i. The values stated on the balance sheet are usually historical and not at fair value.
ii. Most of the financial assets that have some financial significance to the business are presently not recorded for instance, the value of a company's human resource.
iii. Estimates are largely used in a number of instances such as in the determination of collectibility of receivables or finding the approximate useful life of long-term tangible and intangible assets.
Work Step by Step
Additionally, balance sheets are only a snapshot of the conditions of a company, that is, it only takes into consideration what is going on that moment with the business thus it does not take into consideration the business's long-term prospects.
Again the balance sheet does not tell you the accurate value of a company since it only provides you with the figure of the shareholder equity rather than telling you the worth of the company.
