A new accounting standard requires the provision of liabilities for share-based payments that has implications in the firm's debt-to-equity ratio.Which of the following accounting policy choices will reduce the probability of the firm violating debt covenants in a debt agreement?

Question

Quizplus · Accepted Answer

The shift from cost to revaluation method in accounting for land and buildings will increase the value of assets on the balance sheet, which will offset the provision of liabilities for share-based payments. This will result in a higher equity value and a lower debt-to-equity ratio, which will reduce the probability of violating debt covenants in a debt agreement. The other accounting policy choices are not relevant to the provision of liabilities for share-based payments and will not have an impact on the debt-to-equity ratio.

A New Accounting Standard Requires the Provision of Liabilities for Share-Based