An Example of Where the Prudence Assumption Leads to a Reduction

question 60

Multiple Choice

An example of where the prudence assumption leads to a reduction in the valuation of an asset is:

• A)development expenditure capitalised as an asset rather than written off as an expense.
• B)taking an upward revaluation of an asset to a reserve rather than including it in the profit calculation.
• C)valuing inventory at the lower of cost and net realisable value.
• D)All are examples.

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Definitions:

Bereavement

The state of loss and grief experienced following the death of a loved one.

Stage Theory

A psychological theory suggesting that development occurs in distinct phases or stages, each with unique characteristics.

Grief

An emotional response to loss, encompassing a range of feelings from deep sadness to anger, which can affect one's physical, emotional, and mental health.

Bereaved Friend

Someone who is experiencing grief and mourning due to the death of a loved one.