Briar Ltd acquired short-term investments for $100 000 on 31 March 2016.By 30 June 2016 (balance sheet date),the market value had slipped to $85 000.Briar Ltd uses the lower of cost or net realisable value rule.How would the reduction in value of $15 000 be recorded in the accounts for year ended 30 June 2016?
A) As an expense
B) As a charge against retained profits
C) As a reduction in share capital
D) The transaction would not be recorded

Question

Quizplus · Accepted Answer

The reduction in value of $15,000 would be recorded as an expense in the income statement as per the lower cost or net realisable value rule. This is because the market value of the investments has decreased below their original cost, indicating that they might not be sold for the original amount. Therefore, to reflect the market value of the investments accurately, Briar Ltd has to write down the value of the investments by $15,000 as an expense in the income statement for the year ended 30 June 2016.

Briar Ltd Acquired Short-Term Investments for $100 000 on 31