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.

---

Definitions:

Average Daily Float

The average amount of uncollected checks or electronic payments in the banking system at any given time.

Processing Delay

The time taken between the initiation and completion of a process, often referring to the time before a transaction or operation is executed.

BAT Model

A bargaining tool or theory used in negotiation that stands for the Best Alternative To a negotiated agreement.

Marketable Securities

Financial instruments that can be quickly converted into cash at a reasonable price.