By permitting some classes of assets to be valued at cost and others at fair value the AASB has:
A) Removed any confusion regarding the total balance of non-current assets.
B) Forced entities to accurately reflect their true financial position at any point in time.
C) Created a situation where the total asset figure may be a combination of cost and fair value assessments, reducing its meaningfulness.
D) Removed the opportunity for managers to act in their own self-interest as suggested by Positive Accounting Theory.
E) None of the given answers.

Question

Quizplus · Accepted Answer

Allowing some assets to be valued at cost and others at fair value creates a situation where the total asset figure may be a combination of cost and fair value assessments, reducing its meaningfulness. This is because the balance sheet will show a mix of historical cost figures and current market values, making it difficult to compare the total value of assets between companies or even over time for a single company.

By Permitting Some Classes of Assets to Be Valued at Cost