Which of the following accounting policies is an example of costs versus benefits constraint being exercised in the disclosure of financial information?
A)Inventory is valued at lower of cost or market.
B)Property,plant and equipment are appraised and revalued every three years.
C)Biological assets are stated at fair value unless the fair value cannot be measured reliably.
D)Research and development costs are expensed as incurred.
E)None of the given answers.

Question

Quizplus · Accepted Answer

The concept of costs versus benefits constraint in accounting refers to the idea that the cost of providing certain financial information should not outweigh the benefits that users gain from having that information. In other words, if the cost of disclosing certain information is excessive compared to the usefulness of that information to investors, creditors, and other users of financial statements, then it may not be necessary to include it.
Looking at the options provided:
1. Inventory is valued at lower of cost or market.
This is an application of the conservatism principle, not directly related to the cost-benefit constraint.
2. Property, plant, and equipment are appraised and revalued every three years.
This could involve significant costs, but it is not clear from the statement whether the benefits of such revaluation are considered in relation to the costs.
3. Biological assets are stated at fair value unless the fair value cannot be measured reliably.
This option suggests that if the cost (in terms of effort, complexity, or financial resources) of measuring the fair value reliably is too high, the assets are not stated at fair value. This is an example of the cost-benefit constraint being exercised.
4. Research and development costs are expensed as incurred.
This is an application of the matching principle and does not directly relate to the cost-benefit constraint.
5. None of the given answers.
This option would be chosen if none of the other options were examples of the cost-benefit constraint.
Based on the explanations above, the answer that best represents an example of the costs versus benefits constraint being exercised in the disclosure of financial information is:
A: 3. Biological assets are stated at fair value unless the fair value cannot be measured reliably.

Which of the Following Accounting Policies Is an Example of Costs