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:

Financing Activities

Transactions and events that affect the long-term liabilities and equity of a firm, as reported in the cash flow statement.

Accounts Receivable

Funds that customers owe to a business for products or services that have been provided but for which payment has not yet been received.

ACP

An abbreviation that can refer to various terms; without a specific context, it's too broad to define accurately.

Financing Activities

Transactions a company undertakes to finance its business operations, including issuing bonds, stocks, and paying dividends.