Fair (Market) Value vs. Historical Cost or Accounting Value

Question 1

Which of the following is correct regarding the relative relevance and reliability between Historical Cost and Fair Value measures of accounting?

A Historical Cost /Historical Cost

B Historical Cost/ Fair Value

C Fair Value /Historical Cost

D Fair Value /Fair Value

Answer 1

C

Question 2

Under US GAAP, most assets are valued under which accounting method?

A Lower of Cost or Market

B Historical Cost

C Fair Market Value

D Higher of Cost or Market

Answer 2

B

Question 3

What is the primary benefit of using Historical Cost accounting?

A Historical cost results in higher profitability

B Historical cost allows for greater flexibility

C Historical cost more accurately reflects current values

D Historical cost values are more easily verified

Answer 3

D

Question 4

What is the primary limitation of using Fair Market Value accounting?

A Fair Market Values are less reliable than Historical Cost

B Fair Market Values are less relevant than Historical Cost

C Fair Market Values are less adaptive than Historical Cost

D Fair Market Values are less current than Historical Cost

Answer 4

A

Question 5

Which of the following assets is often recorded under the Lower of Cost or Market?

A Cash

B Marketable Securities

C Accounts Receivable

D Inventory

Answer 5

D