Question

I got 4 true or false questions:

Your company pays a third-party for business process reengineering to increase efficiency in its software system. Your boss thinks that these costs should be capitalized to an asset amount. Is this true or false?

Your company provides services in exchange for a customer signing a long-term notes receivable. If the note amount is considered unreasonable, you believe that the note should be recorded at the present value. Is this true or false?

Your company decides to make a change in accounting principle. You know that the change in accounting principle is allowed if the alternative method is justified in being preferable. Your co-worker believes that there is another way a change in accounting principle would be allowed. Is this true or false?

Your company has extinguished a piece of debt instrument by issuing a new, substantially different debt instrument. If extinguishment accounting is applied, you think that the new debt should be valued at fair value to determine any recognized gain or loss. Is this true or false?

Answer 1

Solution:

1: Software system is treated as a capital asset for accounting purpose.Any Overhead incurred on the Process, that increase the life or the efficiency of capital asset, is treated as capital expenditure. Business process reingineering resluted in enhancing the efficiency of the Project. Hence it is a capital Expenditure.So the given statement is true,

2.Long term note recievable is a type of non- current assets for a company which bears interest rate and having maturity period of more than 12 months.When the company issues long term notes the interest related related terms are specied and agreed upon by both issuer and the acceptor and te intrest is fixed after keeeping in mind the time value of money concept. Therefore it can be revised accordingly unless the specifc term is mentioned in the agreement between issuer and acceptor.so the statement is false.

3.whenever change in accounting principle takes place, it should be disclosed in the footnote of the balance sheet if it has any materialistic effect on the assets and liabilities and should be accounted with retrospect effect.Without accounting disclosure it is not allowed.so co workers statement that there is another way of change in accounting principle is false.

4. Whenever a borrrowing paty extinguishes debt before the maturity date, a gain or loss must be recognized. Any excess of the net carrying amount over the reissue price is a profit otherwise it is a loss to the company.so the given statement is true that that in case of extinguishmen accounting the new debt should be valued at fair value to determine any recognized gain or loss.