COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Marketing incorrectly estimates the number of sales so that cash inflows from sales are less than forecast
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The project proposer is eager to have his project accepted and thus makes overly optimistic proposals
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The purchase price of the asset rose beyond initial estimates
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The production department miscalculated production capacity, so the costs incurred were greater than budgeted
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Detailed explanation-1: -In simple terms, cash flow estimation (or cash flow forecasting) is a prediction of how much inflow and outflow of cash a business will have at any given time. It’s a bit more complicated than that, of course, especially when non-cash factors, like depreciation and compound interest, come into play.
Detailed explanation-2: -Estimating future cash flows is not easy because the future cannot be predicted with perfect certainty. Some cash flows can be predicted more accurately than others.
Detailed explanation-3: -The process provides a framework for formulating and implementing the appropriate investment strategies. Cash flow estimates are used to determine the economic viability of long-term investments. The cash flows of a project are estimated using discounted and nondiscounted cash flow methods.
Detailed explanation-4: -01, the auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by fraud or error.