The Revenue Recognition and Asset Valuation Methods Specified in AAS

question 75

Multiple Choice

The revenue recognition and asset valuation methods specified in AAS 25 are likely to increase the volatility of reported earnings.This is because:

• A) Revenue is to be recognised when it is received and depreciation is to be calculated on a units-of-usage basis.
• B) The short-term variation in market prices of assets intended to be held long-term are reported as revenues or expenses each year.
• C) The asset valuation is to be based on the lower of cost and net realisable value, so that there are often lump-sum write-offs to the statement of comprehensive income.
• D) Preparers of accounts for superannuation plans argue that the revenues should be smoothed over a 7-year period rather than all reported as earned in a period.

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