According to Positive Accounting Theory,the Size of the Entity May

question 48

Multiple Choice

According to Positive Accounting Theory,the size of the entity may have an impact on management's decision to revalue because of management's motivation to reduce political costs.There is more than one possible view regarding the effect of revaluation on political visibility,including which of the following?

• A) Since revaluations may increase the variability of asset size, they will increase political costs.
• B) Where increases in asset size are expected to result from revaluations, the increase in the size of the entity may reduce political costs.
• C) Where revaluations increase the size of the asset base, the return on assets will be lower and this will potentially lower political costs.
• D) Where revaluations result in an increase in the asset base, depreciation expense will increase and lead to greater political costs.

---

Definitions:

Universal Life

A flexible premium life insurance policy that combines protection with a cash value accumulation that earns interest.

Social Constraint

Limitations or restrictions on behavior that are enforced by social or cultural norms.

Investment Policy Statement

A document that outlines an investor’s objectives, risk tolerance, time horizon, and investment constraints, guiding the investment decisions and strategies.

Mutual Funds

Investment programs funded by shareholders that trade in diversified holdings and are professionally managed.