Changing from Average Cost to FIFO Over Two Accounting Periods

question 73

Multiple Choice

Changing from Average Cost to FIFO over two accounting periods could be viewed as a violation of what accounting concept or principle?

• A) Conservatism
• B) Consistency
• C) Materiality
• D) Entity
• E) Cost Principle

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Definitions:

Historical Cost

The original monetary value of an asset, without adjustments for inflation, depreciation, or other factors since acquisition.

Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, where the borrower commits to paying back the principal along with interest on a specified schedule.

Amortized Cost

Amortized cost is an investment's acquisition cost adjusted for amortization, impairment charges, and any accumulated payment or receipts since acquisition.

Market Value

The market's current rate for buying or selling an asset or service.