The Auditors Informed the Company That the Provision for Long

question 19

Multiple Choice

The auditors informed the company that the provision for long service leave was understated by $100 000 at 30 June 2016 and that the account should be adjusted.The company adjusted the account so that:

• A) liabilities increase and profit decreases.
• B) liabilities increase but profit is unaffected.
• C) profit increases but there is no effect on liabilities.
• D) there is no effect on either profit or liabilities.

---

Definitions:

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Bank Notes

Paper money issued by a central bank, constituting a common form of legal tender in many economies around the world.

Operating Activities

Activities that constitute the primary or main activities of a company, including production, sales, and delivery of goods and services.