Managers of Some Entities Have Resisted Depreciating Buildings in Accordance

question 30

Multiple Choice

Managers of some entities have resisted depreciating buildings in accordance with AASB 116.Which of the following is the grounds given by directors for failing to act in compliance with AASB 116?

• A) Depreciating buildings when their values are generally increasing over time.
• B) Management is concerned that the effect on ratios such as the times interest-covered and debt/equity may lead to an entity breaching its debt covenants.
• C) Management considers that when the asset is sold the amount of gain or loss that will be reflected in the books will be incorrect.
• D) Depreciating buildings when their value is generally increasing does not make economic sense and management is concerned that the effect on ratios such as the times interest-covered and debt/equity may lead to an entity breaching its debt covenants.

Recognize the assumptions and limitations of theoretical models such as the MM and Miller models, especially concerning taxes and bankruptcy costs.

Identify the factors influencing a firm's decision to adjust its debt ratio and the principle of the trade-off theory.

Analyze the effect of capital structure on a firm’s weighted average cost of capital (WACC) and its valuation.

Understand the relationship between a firm's operating leverage, business risk, and capital structure.

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Definitions:

Jacksonian Democrats

A political movement in the United States during the 1820s and 1830s that championed greater rights for the common man and was opposed to any signs of aristocracy in the nation.

Limited Government

A principle of governance where governmental power is restricted by laws or a constitution to protect individual freedoms.

Electoral Votes

Votes cast by members of the electoral college, who are selected by voters in each U.S. state, that determine the outcome of presidential elections.

John Quincy Adams

John Quincy Adams was the sixth President of the United States (1825–1829), known for his diplomatic contributions before his presidency and his post-presidential career in the House of Representatives, where he was a strong advocate for civil liberties and abolitionism.