Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Useful Information

Financial Accounting

1. Introduction to Accounting

Useful Information

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Multiple Choice

Given information on four investment proposals, which of the following is the most relevant criterion for selecting the best proposal under the concept of 'useful information' in financial accounting?

The proposal with the shortest payback period

The proposal with the highest net present value (NPV)

The proposal with the highest accounting profit

The proposal with the lowest initial investment

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Verified step by step guidance

Understand the concept of 'useful information' in financial accounting. Useful information is that which aids decision-making by being relevant and reliable. In investment decisions, relevance often means focusing on metrics that align with the goal of maximizing shareholder value.

Review the criteria provided in the problem: payback period, net present value (NPV), accounting profit, and initial investment. Each criterion has its own implications and usefulness in evaluating investment proposals.

Recognize that the payback period measures how quickly an investment recovers its initial cost, but it does not account for the time value of money or profitability beyond the payback period. This makes it less relevant for long-term decision-making.

Understand that net present value (NPV) is a financial metric that considers the time value of money by discounting future cash flows to their present value. It directly measures the value added to the firm by the investment, making it the most relevant criterion for selecting the best proposal under the concept of 'useful information.'

Compare NPV to other criteria like accounting profit and initial investment. Accounting profit does not consider cash flows or the time value of money, and focusing solely on the lowest initial investment ignores the potential returns. Therefore, NPV is the most comprehensive and relevant metric for decision-making in this context.