F2 - Financial Reporting and Changing Prices

Question 1

Financial statements prepared under which method include adjustments for BOTH specific changes and general price level changes?

Answer 1

Current cost/constant dollar

Question 2

The actual exchange value in the dollars at that time an asset was acquired or a liability was assumed.

Answer 2

Historical cost

Question 3

The cost that would have been incurred at the present time, the replacement cost.

Answer 3

Current cost

Question 4

Unadjusted for changes in purchasing power

Answer 4

Nominal dollars

Question 5

Dollars restated based on calculations of CPI ratios

Answer 5

Constant dollars

Question 6

During a period of inflation in which the amount in an asset account remains constant, what occurs?

Answer 6

A purchasing power loss, if the item is a monetary asset.
Neither a purchasing power gain or loss, if the item is a non-monetary asset because non-monetary assets change in value as price levels change.

Question 7

Is accumulated depreciation considered monetary or non-monetary?

Answer 7

Non-monetary

Question 8

Under current cost accounting:

Answer 8

Specific price indexes may be used to restate financial statement items.

Question 9

Purchasing power gains and losses are associate with:

Answer 9

Monetary assets and liabilities. During periods of inflation, current dollars purchase less so any liability would then be settled with dollars with lower purchasing power. Thus, a purchasing power gain is recognized.