Holooly Plus Logo
Holooly Plus Logo

Question 11.A.2: There is a further reason why certain accounting policies ma...

There is a further reason why certain accounting policies may be adopted rather than others. This reason was discussed in Chapter 3. Can you recall what it is?

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

Managers may engage in ‘creative accounting’. They may select particular accounting policies, or structure transactions in a particular way, to portray a picture of financial health that accords with what they would like investors to see rather than what is a fair representation of financial performance and position.

Related Answered Questions

Question: 11.A-S-Q.1

Romeo plc produced the following statement of financial position at the end of the third year of trading: ...

Verified Answer:

Romeo plc Adjusted net assets (capital invested) [...
Question: 11.A.4

If the net present value of future cash flows generated by the business represents the value of the business as a whole, how can we derive that part of the value of the business that is available to shareholders? ...

Verified Answer:

A business will normally be financed by a combinat...
Question: 11.A.3

Can you think why NPV analysis should also be relevant when considering the business as a whole? ...

Verified Answer:

It can be argued that the business is simply a por...
Question: 11.A.1

What are the conventional methods of measuring shareholder returns? ...

Verified Answer:

Managers normally use accounting profit or some ra...
Question: 11.E.6

Pisces plc produced the following statement of financial position and income statement at the end of the third year of trading: Statement of financial position as at the end of the third year ...

Verified Answer:

Adjusted NOPAT \begin{matrix}&£m&£m...
Question: 11.E.4

Virgo plc is considering introducing a system of EVA® and wants its managers to focus on the longer term rather than simply focus on the year-to-year EVA® results. The business is seeking your advice on how a management bonus system could be arranged so as to ensure that the longer term is taken ...

Verified Answer:

There is no single correct answer to this problem....
Question: 11.E.2

Aquarius plc has estimated the following free cash flows for its five-year planning period: ...

Verified Answer:

There are a number of ways in which the accuracy o...
Question: 11.C-R-Q.4

It has been argued that many businesses are overcapitalised. If this is true, what may be the reasons for businesses having too much capital and how can EVA® help avoid this problem? ...

Verified Answer:

If businesses are overcapitalised it is probably b...
Question: 11.C-R-Q.3

Should managers take changes in the total market value of the shares (that is, share price × number of shares issued) over time as an indicator of shareholder value created (or lost)? Why? ...

Verified Answer:

The problem with taking changes in the market valu...
Question: 11.C-R-Q.2

Why is MVA not really suitable as a tool for internal management purposes? ...

Verified Answer:

Two problems with the use of MVA as a tool for int...