Assumptions/Accounting Principles

Question 1

Define Allocation

Answer 1

Process of assigning or distributing according to a plan or formula

Question 2

Which attributes are used to measure inventory?

Answer 2

Historical Cost, Replacement Cost, and Net Realizable Value

Question 3

When calculating Present Value with a range of possible outcomes, you would…..

Answer 3

The sum of probability-weighted present values

Question 4

What method is used when FAIR VALUE isn’t available..?

Answer 4

Present Value (this would be used if you have an investment in a private company and you cannot determine the fair value of the company.

Question 5

What are the two approaches to computing present value:

Answer 5

1) The Traditional Method: Uses a single most likely cash flow to calculate and uses the interest rate to calculate.
2) The expected cash flow approach: Uses a risk-free rate