Exam 4: Wealth and the Measurement of Profit

James had $80 000 in the bank. He used some of this cash to buy a new car for $67 000 on 1 January. James subsequently modified the car and sold it for $78 000 on 1 March. The modifications cost James $10 000, and he paid a total of $250 to advertise the car for sale. James' wealth after the sale of the car was:

Choosing a measurement system affects profit but does not affect wealth.

The written down cost of an asset represents the cost of an asset after accumulated depreciation.

In the 2014-15 English Premier League season, Manchester United signed 26-year-old Argentina winger, Angel di Maria, from Real Madrid for a British record transfer fee of £59.7 million. di Maria signed on with Manchester United for a five-year deal that will net him £6.5 million a year after tax, just behind United's captain Wayne Rooney in terms of annual earnings. Manchester United's total investment in di Maria is estimated to be in excess of £100 million. [Source: HYPERLINK "http://www.dailymail.co.uk/home/search.html?s=&authornamef=Ian+Ladyman+for+MailOnline"Ladyman, I. (2014) 'Angel di Maria completes Manchester United transfer as Argentina star joins from Real Madrid for British record fee of £59.7m', MailOnline, 04:06 AEST, 27 August 2014 and Updated: 17:20 AEST, 27 August 2014 URL: HYPERLINK "http://www.dailymail.co.uk/sport/football/article-2734469/Angel-di-Maria-completes-Manchester-United-Argentina-star-joins-Real-Madrid-British-record-fee-59-7m.html"http://www.dailymail.co.uk/sport/football/article-2734469/Angel-di-Maria-completes-Manchester-United-Argentina-star-joins-Real-Madrid-British-record-fee-59-7m.html and accessed 8.30 AM WST, 17 September 2014].

Fair value arises in circumstances where the price is based on an orderly transaction between a willing seller and a willing buyer.

Profit measures the flow of resources into and out of the business over time.

The common measurement method adopted in most countries is that of historic cost.

Economic value is considered to be an ideal approach to measuring value, but may lack reliability due to the fact that the measure relies on estimates.

When calculating costs associated with the sale of an item, which of the following are included in the net realisable value?

Current accounting practice in Australia is to initially record property, plant and equipment at:

James had $80 000 in the bank. He used some of this cash to buy a new car for $67 000 on 1 January. James subsequently modified the car and sold it for $78 000 on 1 March. The modifications cost James $1000. The historical cost of the car is:

Aaron sold his large lounge chair for $1000. He incurred costs of $100 for advertising, $120 for hiring a van to transport the chair to the buyer, and $200 for a speeding fine. What is the net realisable value?

The value of the expected earnings from using an item, discounted at an appropriate rate to give a present-day value, is the economic value.

For which of the following accounts would the use of historical cost normally be a greater limitation than for the other three?

Historic cost refers to:

Tom purchased an item for $5050 last year. This year, he sold the item to a complete stranger for $7000 and incurred a sum of $250 for advertising it. Which of the following statements is true?

Where an asset is measured at fair value, the figure involved:

Historical cost is often referred to as the most relevant method of measurement.

Where an asset is measured on the basis of the discounted net cash flows that are expected to be generated by the future use of the item, the resulting measure is referred to as:

Historic cost is the cost incurred by an individual or enterprise in acquiring an item, measured at the time of the originating transaction.