Prior to the Introduction of Impairment Testing Companies Had Attempted

question 18

Multiple Choice

Prior to the introduction of impairment testing companies had attempted to manipulate their accounts through amortisation:

• A) Because where managers were rewarded based on profits attained it was in their best interests to reduce expenses while they held that position.
• B) Because contractual arrangements such as debt covenants often required asset values to be maximised.
• C) Recording higher amortisation expenses allowed profits to be reduced, thus allowing tax payments to be minimised without any cash outflows.
• D) Because where managers were rewarded based on profits attained it was in their best interests to reduce expenses while they held that position; and because contractual arrangements such as debt covenants often required asset values to be maximised.
• E) All of the given answers.

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Definitions:

FICA Tax Rate

The combined rate for Social Security and Medicare taxes that employers and employees must pay on wages.

OASDI

Old-Age, Survivors, and Disability Insurance, a comprehensive federal benefits program that includes retirement, disability, and survivors benefits.

State Income Tax

A tax levied by a state on the income of its residents and businesses operating within its jurisdiction.

Federal Income Tax

The annual income of individuals, corporations, trusts, and other legal organizations is subject to taxation by the IRS.