If a business invests in shares, and the market value of the shares increases above cost then,
Question:
‘If a business invests in shares, and the market value of the shares increases above cost then, until and unless the business sells them, no profit is made. If the business invests in inventory for resale, and the market value of the inventory falls below cost then the loss is recognized even though no sale has taken place.’ ‘If a business undertakes an intensive advertising campaign which will probably result in increased sales (and profit) in succeeding years it will nevertheless usually write off the cost of the campaign in the year in which it is incurred.’
Required
Explain the reasoning behind the application of accounting principles in situations such as these and discuss the effect on the usefulness of accounting information in relation to users’ needs.
Step by Step Answer:
Introduction To Financial Accounting
ISBN: 9781526803009
9th Edition
Authors: Anne Marie Ward, Andrew Thomas