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. He subsequently modified the car, at no cost, and sold it for $78 000 on 1 March. What profit did James make from the sale of the car?

Which of the following statements is incorrect?

Explain what is meant by the term written-down value, and how the measure differs from the historic cost of an asset.

Peter has the following assets at various dates. He has no liabilities and earned no other income over this two-year period. Which of these statements is correct?

The wealth of an entity is determined by what it controls and what it owes.

Where an asset is exchanged between a willing seller and a willing buyer and the exchange price is below the market price due to fact that the parties involved are related, the resulting exchange price is referred to as fair value.

Which of the following statements is true of profit and wealth?

In August 2005, Western Australia's then biggest meat processor, E G Green & Sons, was suspended trading with debts estimated at $20 million. The company was, at that time, facing either (i) liquidation, or (ii) trading out of difficulty and continuing as a going concern.

From the Hicksian economic viewpoint, profit is the amount which an individual can consume over a period and still be as well off at the end of the period as he/she was at the beginning of the period.

Profit represents an increase in wealth.

For which of the following accounts would the limitation 'use of estimates and allocations' not be a concern?

Distinguish between the terms 'wealth' and '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 $9000, and he paid a total of $250 to advertise the car for sale. James made a profit on the sale of the car of:

Assume that the following information relates to you at today's date. You have $120 cash in hand; $3350 deposited in a bank account; a motor vehicle valued at $13 000; jewellery and other miscellaneous items valued at $3200; and a friend owes you $100. You owe $1500 to a relative who lent you the money to purchase the vehicle. What is the amount ($) of your wealth, given the foregoing information?

The net realisable value is the estimated proceeds of sales less, where applicable, all further costs to the stage of completion, and less all costs to be incurred in marketing, selling and distribution to customers.

Jane buys a 1957 FJ Holden at time T₀ for $100 000. At time T₁, the car is valued at $180 000. Jane's profit and wealth at T₁ are:

The replacement cost of an asset:

The fair value of an asset is more reliable where there exists a liquid market for the asset, than when no liquid market exists.

Where an asset is measured using economic value, the figure involved:

Assume that you bought a new computer from Computers Plus for $3200 in August last year. However, your computer needs to be repaired. You have been advised that it will cost $275 to repair the computer. You could sell the computer for $500 if you have it repaired and $100 if you do not have it repaired. The new price for a similar computer in is $3050.