Which of the following accounting policies is an example of a trade-off between relevance and reliability?
A)Research outflows are expensed and development activities expenses are capitalized.
B)Biological assets are stated at fair value unless the fair value cannot be measured reliably.
C)Machinery and equipment are reviewed periodically to assess propriety of useful life estimations used in depreciation.
D)All of the given answers.
E)None of the given answers.

Question

Quizplus · Accepted Answer

The accounting policy that exemplifies a trade-off between relevance and reliability is option 2: "Biological assets are stated at fair value unless the fair value cannot be measured reliably."
This policy reflects a trade-off because fair value measurements are considered relevant as they provide current market-based information that can be useful for decision-making. However, the reliability of these measurements can be compromised if fair values are not easily determinable or if estimates are subject to significant uncertainty. In such cases, the policy allows for a departure from fair value measurement to ensure that the reported information remains reliable, even though it may be less relevant than fair value information.

Which of the Following Accounting Policies Is an Example of a Trade-Off