Question 1

The purpose of CPP is to:&#10;A)Maintain the capital of the firm in terms of purchasing power&#10;B)Give a realistic valuation for profit in the current period&#10;C)Provide comparability across different companies&#10;D)Reflect the movement in value of different assets

Accepted Answer

CPP (Current Purchasing Power) is a method of accounting that takes inflation into consideration by adjusting the value of assets and liabilities based on changes in the general price level. The purpose of CPP is to maintain the capital of the firm in terms of purchasing power, which means that the financial statements present a more realistic picture of the company's financial position and performance. Therefore, the correct choice is A. B, C, and D may be potential benefits of using CPP, but they are not the primary purpose.

Question 2

A unit of money is an artificial construct.

Accepted Answer

A unit of money, such as a dollar or a euro, is created by society and has no inherent value. Its value is determined by various economic factors and government policies. Therefore, it is an artificial construct.

Question 3

Which of the following is NOT an advantage of current purchasing power accounting?&#10;A)All necessary units are restated in terms of a common measuring unit&#10;B)It distinguishes between gains or losses on monetary liabilities or assets and 'real' gains or losses through trading activities&#10;C)It requires only a simple objective adjustment to HC accounts&#10;D)It is clear what CPP units are since they are the same as monetary units

Accepted Answer

Current Purchasing Power (CPP) accounting adjusts historical cost accounts for changes in the general level of prices, thus providing a more realistic view of a company's financial position and performance in times of inflation. However, CPP units are not the same as monetary units because they are adjusted for changes in purchasing power, making statement D incorrect.

Question 4

When,in general,prices are rising it is better to delay purchasing fixed assets.

Accepted Answer

When prices are rising, it is generally better to purchase fixed assets sooner rather than later to avoid higher costs in the future due to inflation.

Question 5

Current purchasing power calculations do not alter the basis of valuation.

Accepted Answer

Current purchasing power calculations adjust for inflation and the changing value of money but do not change the underlying value or basis of the asset being valued.

Question 6

Current purchasing power calculations use specific indices for different classes of asset.

Accepted Answer

The answer of Current purchasing power calculations use specific indices...

Question 7

Under the static view,assets in the balance sheet should be valued at:&#10;A)Historic cost&#10;B)Replacement cost&#10;C)Opportunity cost&#10;D)Net realisable value

Accepted Answer

The answer of Under the static view,assets in the balance...

Question 8

We placed (at December 31)in 20X1 &#8364;100 in an investment that has paid out &#8364;115 on December 31,20x4.Inflation has been 4% per annum.How much better off are we?&#10;A)&#8364;7&#10;B)&#8364;3&#10;C)&#8364;5&#10;D)- &#8364;5

Accepted Answer

The answer of We placed (at December 31)in 20X1 &#8364;100...

Question 9

Which of the following is NOT a monetary item?&#10;A)Cash&#10;B)Inventory&#10;C)Debtors&#10;D)Creditors

Accepted Answer

Monetary items are assets and liabilities that reflect a fixed value in terms of currency, such as cash, debtors, and creditors. Inventory, on the other hand, represents physical goods that have a fluctuating value and do not reflect a fixed value in terms of currency.

Question 10

Current purchasing power accounting is an acceptable approach in the USA.

Accepted Answer

Current purchasing purchasing power accounting is not widely accepted or used in the USA for financial reporting; instead, the country primarily follows Generally Accepted Accounting Principles (GAAP), which do not incorporate current purchasing power adjustments for inflation or changes in the value of money.

Deck 7: Current Purchasing Power Accounting