In Recognizing a Decline in the Market Value of a Trading

question 24

Multiple Choice

In recognizing a decline in the market value of a trading investment, Loss on Fair value adjustment account is debited

• A) because management intends to realize this loss in the near future.
• B) to reflect the fair value of the investment on the balance sheet.
• C) because the company is no longer a going concern.
• D) because there is a permanent decline in the fair value.

---

Definitions:

Annual Before Taxes

The total income or earnings generated by an entity during a fiscal year before any tax deductions.

Tax Rate

The degree of governmental claim on the earnings or profit of people and companies through taxation.

Operating Cash Flow (OCF)

A measure of the cash generated by a company's normal business operations, indicating its ability to cover operational expenses and invest in its business.

Tax Shield Approach

A method used in financial analysis to determine the value of tax deductions, such as interest on debt, which reduces taxable income.