Which of the Following Statements Is Incorrect

question 2

Multiple Choice

Which of the following statements is incorrect?

• A)The capitalisation of a leased asset increases the value of reported non-current assets and reduces the return on assets ratio.
• B)Recognition of the present value of future lease payments as a liability increases reported current and non-current liabilities.This favourably affects gearing ratios.
• C)The recognition of finance leases may have adverse consequences on the financial statements of a lessee entity.
• D)The different accounting approaches for finance leases and operating leases provide an incentive for managers to misclassify lease arrangements as operating leases.

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Definitions:

Pre-acquisition Entry

Accounting entries made to record the assets and liabilities acquired from another company before the actual acquisition.

Shares in Subsidiary

Ownership stakes held in a subsidiary company by the parent company or other shareholders.

Acquisition Date

The date on which control of the assets and operations of an acquired company is transferred to the buyer.

Acquired Goodwill

The excess of the purchase price over the fair value of the net assets acquired in a business combination, reflecting intangible assets like brand reputation, customer relationships, etc.