Question

Keeping an asset implies reinvestment in the asset. Finance theory is consistent with the notion that...

Keeping an asset implies reinvestment in the asset. Finance theory is consistent with the notion that reinvestment is at current value, or replacement cost. Such a decision is presumably based on comparing expected future cash flows that will be generated by the asset and the cost of replacing it with a new one that could generate the same or different cash flows. According to the conceptual framework, the purpose of financial statements is to provide information regarding performance. Investment or reinvestment decisions are a part of that performance. Yet, the historical cost of fixed assets is retained and allocated over subsequent accounting periods.

b. Does cost allocation provide relevant information?

c. Would a current?value approach to measurement of fixed assets be preferable? Why?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Cost allocation in respect of assets like plant and machinery means the number of years in which the cost is allocated. Cost allocation provide relevant information like the useful life of the asset, cost of the asset, cost treated as expenses in the current year.

Part C

No it wont be preferable because in this approach knowledge of reinvestment value of the assets would be required at the end of year which can be impractible to obtain especially if the asset is old or specialised in nature that its market value is not obtainable. This can lead to manipulation by manage to show better perfomance, thus defeating purpose of conceptual framework

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Keeping an asset implies reinvestment in the asset. Finance theory is consistent with the notion that...
Keeping an asset implies reinvestment in the asset. Finance theory is consistent with the notion that reinvestment is at current value, or replacement cost. Such a decision is presumably based on comparing expected future cash flows that will be generated by the asset and the cost of replacing it with a new one that could generate the same or different cash flows. According to the conceptual framework, the purpose of financial statements is to provide information regarding performance. Investment or...
Choose the correct answer from the options The underlying theme of the conceptual framework is (E1-PC1)...
Choose the correct answer from the options The underlying theme of the conceptual framework is (E1-PC1) decision usefulness. understandability. faithful representation. comparability. The objective of financial reporting in the International Accounting Standards Board’s (IASB’s) Conceptual Framework (E1-PC1) Is the foundation for the Framework. Includes the qualitative characteristics that make accounting information useful. Is found on the third level of the Framework. All of the choices are correct regarding the objective of financial reporting. The second level in the International Accounting...
IFRS U.S. GAAP 4. May use either cost model or revaluation model to a PPE class....
IFRS U.S. GAAP 4. May use either cost model or revaluation model to a PPE class. 4. Require cost model and prohibit revaluation model for PPE. 5. Each part of an item of PPE with a cost that is significant in relation to the total cost shall be depreciated separately 5. Take a ‘holistic view’ of PPE depreciation instead of the IFRS ‘component’ approach. Using the chart above: Discuss which accounting treatment (IFRS, U.S. GAAP, or another new treatment from...
1. For each transaction, indicate whether a company would classify the related account as an asset,...
1. For each transaction, indicate whether a company would classify the related account as an asset, liability, stockholders' equity, dividend, revenue, or expense. Transactions Related Accounts Account Classification 1. Receive cash from investors. Common Stock 2. Pay rent for the current period. Rent Expense 3. Purchase office equipment. Equipment 4. Pay cash to stockholders. Dividends 5. Provide services to customers. Service Revenue 2. Account classifications include assets, liabilities, stockholders' equity, dividends, revenues, and expenses. Indicate the account classification for each...
Electroboy Enterprises, Inc. operates several stores throughout northern Belgium and the southern part of the Netherlands....
Electroboy Enterprises, Inc. operates several stores throughout northern Belgium and the southern part of the Netherlands. As part of an operational and financial reporting review in a response to a downturn in it markets, the company’s management has decided to perform an impairment test on five stores (combined). The five stores’ sales have declined due to aging facilities and competition from a rival that opened new stores in the same markets. Management has developed the following information concerning the five...
Asset management ratios are used to measure how effectively a firm manages its assets, by relating...
Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio. Consider the following case: Walker Telecommunications has...
Accounting, Analysis, and Principles Electroboy Enterprises, Inc. operates several stores throughout northern Belgium and the southern...
Accounting, Analysis, and Principles Electroboy Enterprises, Inc. operates several stores throughout northern Belgium and the southern part of the Netherlands. As part of an operational and financial reporting review in a response to a downturn in it markets, the company's management has decided to perform an impairment test on five stores (combined). The five stores' sales have declined due to aging facilities and competition from a rival that opened new stores in the same markets. Management has developed the following...
The purposes of this article, capital assets are defined as tangible or intangible assets that are...
The purposes of this article, capital assets are defined as tangible or intangible assets that are used in operations and that have useful lives of more than one year, such as land and improvements to land, buildings and building improvements; vehicles; machinery; equipment; and sewer, water and highway infrastructures. Risk Assessment: A municipality’s capital assets are subject to a number of risks. Local officials must be cognizant of these risks as they seek to effectively manage their municipality’s capital assets....
The comparative financial statements of the Summer Company are as follows. The market price of the...
The comparative financial statements of the Summer Company are as follows. The market price of the Summer Company common stock was $36 on December 31, 2016 and $11.20 on December 31, 2017.           Summer Company Comparative Balance Sheet December 31, 2017, 2016 and 2015 ASSETS 2017 2016 2015 Current Assets Cash $176,200 $253,100 $26,500 Accounts Receivable 238,850 31,850 67,350 Merchandise Inventory 62,500 42,500 130,000 Prepaid Expenses 700 1,700 2,200 Total Current Assets $478,250 $329,150 $226,050 Plant Assets 696,100 726,100 786,100...
Put on X in the box of the element associated with the items below Inv by...
Put on X in the box of the element associated with the items below Inv by Dist to Compr Assets Liabilities Equity Owners Owners Income Revenues Expenses Gains Losses 1 Paid in Capital 2 Service Revenue 3 Interest Receivable 4 Rent 5 Loss on sale of investment 6 Accounts Payable 7 Dividends 8 Preferred Stock Issued 9 Gain on sale of equipment Put on X in the box of the assumption, principle, or constraint associated with the items below Economic...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT