A New Accounting Standard Requires ABC Ltd to Recognise as Expense

question 13

Multiple Choice

A new accounting standard requires ABC Ltd to recognise as expense all share-based payments,specifically the issue of options to its employees.Prior to this standard,the company need not do anything until the options are exercised.The manager of ABC Ltd.is worried about this new standard as the company is close to a technical violation of its borrowing agreements that the debt-to-equity ratio be less than 40%.Most of the options on issue are cash-settled and will require an increase in liabilities.Which of the following accounting policies if adopted by the company could reduce the likelihood of a debt covenant violation:

• A) Switching from accelerated depreciation to straight-line depreciation method.
• B) Decreasing provision for warranty expenses.
• C) Revaluing assets upwards.
• D) All of the given Answers.
• E) None of the given Answers.

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