A company has a debt covenant in place that limits the amount it can borrow to 50% of its tangible assets.If the company's actual value for that ratio is approaching violation of this debt covenant,consistent with PAT,management would try to relax the constraint by:

Question

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Revaluing assets upwards would increase the value of the company's tangible assets, which would allow the company to borrow more without violating its debt covenant. Switching depreciation methods, increasing allowance for doubtful debts, and increasing provision for warranty expenses would not directly impact the company's tangible assets and therefore would not relax the debt covenant constraint.

A Company Has a Debt Covenant in Place That Limits