Question

Which of the following are not examples of directly attributable costs that should be included in the cost of acquisition for property, plant and equipment?

Select one:

a. Installation and assembly costs

b. Costs of site preparation

Which of the following statements is true with regards to the political cost hypothesis?

Select one:

a. Managers of entities that are more politically visible are expected to choose accounting policies that reduce profit in order to avoid political costs.

b. Managers of financial institutions may prefer to increase profits to reduce government pressure to pass on interest rate cuts.

c. Political costs arise because of an entity’s relationships with shareholders and lenders.

d. Smaller entities are more likely to be the target of environmental groups.

Which of the following statements about the going concern assumption is not true?

Select one:

a. it is used when an entity goes into liquidation.

b. it supports the use of assets such as Prepaid Expenses.

c. it can justify the use of historical costs when measuring non-current assets.

d. it supports the systematic allocation of depreciation over an asset’s useful life.

c. Costs of opening a new facility.

d. Initial delivery and handling costs

Answer 1

1	Installation and assembly costs are directly attributable to the purchase of equipment. However, site may be prepared for all the assets at once, without being incurred specifically for a particular asset. Hence, the right answer is b. Costs of site preparation.
2	Managers generally select accounting policies to reduce accounting profits. Hence, the right answer is Option a.
3	Going concern assumption is required to present all the assets at historical cost. Otherwise, they should be presented at their realizable values. Going concern assumption is used unless there is no need for entity to curtail its operations. Hence, the right answer is Option a - that it is used when company goes to liquidation.