If the Cost of a Major Service on a Motor

question 16

Multiple Choice

If the cost of a major service on a motor vehicle, which did not increase the vehicles' useful life was incorrectly capitalised and added to the carrying amount of the vehicle rather than being expensed, expenses would be:

• A) overstated, fixed assets would be overstated and equity would be understated.
• B) understated, fixed assets would be overstated and equity would be overstated.
• C) understated, fixed assets would be understated and equity would be overstated.
• D) understated, fixed assets would be overstated and equity would be understated.

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Definitions:

Service Braking

The primary braking system used in vehicles for regular stopping and speed control, as opposed to auxiliary or emergency braking.

Scenario Analysis

The determination of what happens to NPV estimates when we ask what-if questions.

Capital Budgeting

The process by which a business evaluates and selects long-term investments that are likely to yield the highest returns.

What-If Questions

Hypothetical queries used in analysis or decision-making to explore different outcomes based on varying scenarios.