Financial Accounting: Balance Sheet Evaluation

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What is a limitation of Historical Cost Accounting (HCA) in terms of decision-making?

It is only used for small businesses

It does not provide sufficient information for evaluating business decisions (correct)

It provides current and relevant information for business decisions

It is not relevant for businesses with non-current assets

What assumption is made in Historical Cost Accounting regarding the life of a firm?

The firm is not expected to continue

The firm will eventually go bankrupt

The firm has a limited lifespan

The firm has an indefinite lifespan (correct)

Why is Historical Cost Accounting open to manipulation in financial reporting?

Because it is based on arbitrary decisions

Because it is based on current market values

Because it is based on the subjective judgment of management (correct)

Because it is based on objective measures

What is a criticism of Historical Cost Accounting regarding the matching concept?

There is no established concept for proper matching (A) Signup and view all the answers

What is a limitation of Historical Cost Accounting in terms of relevance?

The information becomes less relevant over time (B) Signup and view all the answers

What is a criticism of Historical Cost Accounting regarding asset valuation?

It values assets at their historical cost (D) Signup and view all the answers

What is the main concern of traditional accounting according to Sprouse (1973)?

Relegating the balance sheet to a secondary position (D) Signup and view all the answers

What is the primary focus of conventional accounting?

Current rates of return (B) Signup and view all the answers

What assumption underlies the basic concept of Current Cost Accounting (CCA)?

The firm is a going concern (A) Signup and view all the answers

What is a limitation of Historical Cost Accounting (HCA) for decision-making?

It does not consider the current cost of replacement (D) Signup and view all the answers

What is a consequence of conventional accounting practices?

Creative accounting and misleading data (C) Signup and view all the answers

What is a key aspect of investor needs that conventional accounting takes for granted?

Psychology of market and its effect on share prices (A) Signup and view all the answers

What is the primary objective of Current Cost Accounting?

To assist managers in making decisions about resource allocation (B) Signup and view all the answers

Which of the following is a limitation of Historical Cost Accounting for decision making?

It does not take into account the current market value of assets (C) Signup and view all the answers

What is the main assumption underlying the Going Concern concept?

The business will continue to operate indefinitely (B) Signup and view all the answers

Which of the following is a key concept in the Decision-Usefulness approach?

Relevance (A) Signup and view all the answers

What is the main objective of financial reporting according to the Objectivity principle?

To provide stakeholders with a true and fair view of the company's financial position (A) Signup and view all the answers

What is a potential consequence of manipulation of financial reporting?

Distorted view of the company's financial position (C) Signup and view all the answers