Where There Is a Difference Between Fair Value at Initial

question 7

Multiple Choice

Where there is a difference between fair value at initial recognition and cost, assuming no other standard prohibits it, the entity should

• A) Ignore the difference as there should be no day one gain or loss
• B) Amortise the difference over the useful life of the item
• C) Immediately adjust the value and recognise profit or loss
• D) Pay more or less for the item to make the figures equal

---

Definitions:

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor.

Book Value

The value of an asset according to its balance sheet account balance, calculated by subtracting the accumulated depreciation from the asset's original purchase cost.

Trading In

The act of giving a used item as part of the payment for a new item, often used in car sales.

Further Processing Costs

Additional costs incurred when processing products beyond their initial production stage to enhance their value.