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Prior to the Introduction of Impairment Testing Companies Had Attempted

Question 54

Multiple Choice

Prior to the introduction of impairment testing companies had attempted to manipulate their accounts through amortisation:

A) because where managers were rewarded based on profits attained it was in their best interests to reduce expenses while they held that position.
B) because contractual arrangements such as debt covenants often required asset values to be maximised.
C) because recording higher amortisation expenses allowed profits to be reduced, thus allowing tax payments to be minimised without any cash outflows.
D) because where managers were rewarded based on profits attained it was in their best interests to reduce expenses while they held that position and because contractual arrangements such as debt covenants often required asset values to be maximised.

Correct Answer: