According to Positive Accounting Theory,the size of the entity may have an impact on management's decision to revalue because of management's motivation to reduce political costs.There is more than one possible view regarding the effect of revaluation on political visibility,including:
A) Since revaluations may increase the variability of asset size, they will increase political costs.
B) Where increases in asset size are expected to result from revaluations, the increase in the size of the entity may reduce political costs.
C) Where revaluations increase the size of the asset base, the return on assets will be lower and this will potentially lower political costs.
D) Where revaluations result in an increase in the asset base, depreciation expense will increase and lead to greater political costs.
E) None of the given answers.

Question

Quizplus · Accepted Answer

Revaluations that increase the asset base can lower the return on assets, potentially reducing political costs by making the entity appear less profitable and thus less of a target for political scrutiny.

According to Positive Accounting Theory,the Size of the Entity May