$23,500 S11,500 $21,000 $72,100 None of the above B. co E. ng of investing in Me
ID: 2330608 • Letter: #
Question
$23,500 S11,500 $21,000 $72,100 None of the above B. co E. ng of investing in MediCorp, a manufacturer of medical equipment. You obtain its most recent rt and it appears that the company is very profitable and has a sound financial position. However, 6. You are hile watching the evening news, you example of financial information that has the qualitative characteristic learn that MediCorp is a defendant in several lawsuits related to defective I equipment which may have resulted in several deaths. The information presented on the news is an Consistency B. Relevance C. Conservatism Understandability Faithful representation 1 7. Materiality states that: hos relevance tnBiuence ient A. B. C. Assets should be initially recorded at cost and adjusted when the market value changes. Assets should be recorded at their historical costs. Only transaction data capable of being expressed in terms of money should be included in the accounting records. The activities of an entity should be kept separate and distinct from its owners. Before determining whether to record the cost of a stapler as an expense, it should be determined whether this treatment would affect the judgement of a decision maker. E. 8. A company reported the following amounts at the end of its first year of operations Dividends Retained Earnings ??? 05 s 18 215 Total liabilities RevenueExplanation / Answer
6. B. Relevance.
Relevance in this context means that the information presented on the news is relevant to the decision maker in making the decision. It is likely to influence his judgement as to whether to invest in the company or not.
7. E.
The information presented in the financial statements should be significant enough to influence the judgement of the decision maker. For a very small business, the cost of a stapler may be capitalized. On the other hand, for a large business, it is not material to the decision maker whether the cost of the stapler is capitalized or expensed.
Similarly, for a small business, an expense may be large enough to be disclosed separately. For a large business, the same expense, being too small in comparison to the other expenses, may be clubbed with other small expenses and shown under 'miscellaneous expense'.
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