- 1 Marks
AAA – Nov 2012 – L3 – SA – Q4 – Regulatory Framework and Professional Standards
Identifying non-deficiencies of historical cost accounting in inflation periods.
Question
The deficiencies of historical cost accounting during inflation EXCLUDE which of the following?
A. The Net Book Value of Fixed Assets is often substantially below their current value
B. The statement of financial position figure of stock reflects prices ruling at the date of purchase or manufacture rather than those current at the year end
C. Charges made in arriving at the profit do not reflect the current value of assets, which result in overstated profit in real terms
D. If the historical cost accounting profit were distributed in full, the level of operations would have to be curtailed
E. The understatement of profit and the overstatement of assets prevent meaningful calculations of profitability
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