In a statement of solvency, a firm's assets and liabilities should be measured at:
A)carrying amount using the cost model
B)carrying amount using revaluation model
C)net realisable value
D)recoverable amount

Question

Quizplus · Accepted Answer

In a statement of solvency, assets and liabilities should be measured at their net realizable value, which is the estimated amount that a company can receive from selling its assets or settling its liabilities. This is because solvency measures a company's ability to pay debts as they become due, and net realizable value reflects the actual value that can be realized from assets and liabilities in the current market conditions. Using the carrying amount using the cost model (choice A) or the carrying amount using the revaluation model (choice B) may not reflect the current market value of the assets and liabilities, and using recoverable amount (choice D) may not provide a realistic value as it is based on future cash flows.

In a Statement of Solvency, a Firm's Assets and Liabilities