Estimations Are Frequently Made in the Financial Statements in Relation

question 32

Multiple Choice

Estimations are frequently made in the financial statements in relation to items such as bad debts,inventory obsolescence,an asset's useful life and the expected pattern of consumption of economic benefits of depreciable assets.The effect of these estimations on the financial statements is to:

• A) increase the variability of profits.
• B) make the statement unreliable.
• C) reduce the relevance of the profit figures reported.
• D) None of the given answers are correct.

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Definitions:

Stereotypes

Widely held but fixed and oversimplified images or ideas of a particular type of person or thing, which often do not reflect reality.

Self-Fulfilling Prophecies

Expectations about a situation or person that lead to behaviors which cause the expectation to come true.

Cognitive Dissonance

A psychological concept describing the discomfort felt when holding conflicting cognition, beliefs, or values, prompting individuals to seek consistency.

Festinger

Leon Festinger was a social psychologist known for the theory of cognitive dissonance, which describes the discomfort felt when holding conflicting beliefs or values.