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.

Recognize the classification of cash receipts and payments in the appropriate section of the statement of cash flows.

Identify the impact of certain activities on the statement of cash flows that do not result in cash movements.

Comprehend the differences between the direct and indirect methods of reporting cash flows from operating activities.

Understand the relationship between the statement of cash flows and other financial statements.

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Definitions:

Mutual Funds

Investment schemes that are financed by investors, which operate in a variety of holdings and are overseen by professional managers.

Aircraft Engines

These are propulsion systems designed and manufactured specifically to provide thrust for aircraft to fly.

Boeing

An American multinational corporation that designs, manufactures, and sells airplanes, rotorcraft, rockets, satellites, telecommunication equipment, and missiles worldwide.

Institutional Investor

An organization, such as a bank, pension fund, mutual fund, or insurance company, that invests large sums of money into the financial markets.