Inflation basics
What is inflation?
A. Fall in general price levels
B. Rise in general price levels
C. Fall in production
D. Rise in unemployment
B)Rise in general price levels
Which item is most likely to be understated when inflation is ignored?
A. Fixed assets
B. Cash
C. Creditors
D. Bank balance
A)Fixed assets
What does CPP stand for?
A. Current Profit Price
B. Current Purchasing Power
C. Current Production Price
D. Cost Purchasing Principle
B. Current Purchasing Power
What does CCA stand for?
A. Current Cost Accounting
B. Capital Cost Analysis
C. Current Capital Adjustment
D. Cost Control Accounting
A. Current Cost Accounting
Which method mainly considers changes in the general purchasing power of money?
A. CCA
B. CPP
C. Historical Cost
D. Cash Accounting
B. CPP
Which method records assets at the original purchase cost?
A)CPP method
B)CCA method
C)Historical cost accounting
D) Replacement cost method
C)Historical cost accounting
During inflation, depreciation based on historical cost is generally:
A. Overstated
B. Understated
C. Unchanged in all cases
D. Eliminated
B) Understated
Which formula is used under the CPP method?
A. Historical Cost × Historical Index ÷ Current Index
B. Historical Cost + Current Index
C. Historical Cost × Current Index ÷ Historical Index
D. Historical Cost − Current Index
C. Historical Cost × Current Index ÷ Historical Index
Under CCA, fixed assets are generally valued using:
A. Historical cost
B. Current or replacement cost
C. Original selling price
D. Face value
B. Current or replacement cost
Which method uses current or replacement costs of specific assets?
A. CPP
B. CCA
C. Historical Cost
D. Cash Basis
B. CCA
Which is the major limitation of Historical cost accounting during inflation?
A)it ignores sales revenue
B)it does not reflect changes in the purchasing power of money
C)it eliminates depreciation
D)it records all assets at market value
B)it does not reflect changes in the purchasing power of money
Why can profits be overstated during inflation under Historical Cost Accounting?
A. Revenue is not recorded
B. Expenses may be based on outdated lower costs
C. Liabilities are ignored
D. Cash is overvalued
B. Expenses may be based on outdated lower costs
An asset was purchased for ₹40,000 when the price index was 100. The current price index is 150. What is its CPP-adjusted value?
A. ₹50,000
B. ₹60,000
C. ₹65,000
D. ₹70,000
B)₹40,000 × 150 ÷ 100 = ₹60,000
What does COSA stand for in CCA?
A. Cost of Sales Adjustment
B. Current Operating Sales Amount
C. Cost of Stock Analysis
D. Capital Operating Sales Adjustment
A. Cost of Sales Adjustment
Which statement correctly distinguishes CPP from CCA?
A. CPP uses current replacement cost, while CCA uses general price indices
B. CPP adjusts for general purchasing power, while CCA focuses on current costs
C. Both methods use exactly the same basis
D. CCA ignores changes in asset costs
B. CPP adjusts for general purchasing power, while CCA focuses on current costs