Which Profit Recognition Method Is the Most Conservative

question 78

Multiple Choice

Which profit recognition method is the most conservative?

• A)sales method
• B)percentage of completion method
• C)collection (receipt of cash)method
• D)instalment method

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Definitions:

Intrinsic Value

The true or inherent value of a financial asset, based not on market price but on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.

Pure Discount Bond

A type of bond that is issued at a discount to its face value, pays no interest, and is redeemed at its face value at maturity.

Risk-Free Rate

The theoretical rate of return of an investment with zero risk of financial loss, typically represented by the yield on government bonds.

Equity

The ownership interest in a company, represented by the amount of money that would be returned to shareholders after paying off all liabilities.