Capitalizing an expenditure rather than recording it as a revenue expenditure wi

Question

Capitalizing an expenditure rather than recording it as a revenue expenditure will:

a.

Impact the total book value of operating assets reported on the balance sheet, but has no effect on the net income reported during an accounting period for a company.

b.

Impact the amount of net income reported during an accounting period, but has no effect on the total book value of operating assets on the balance sheet.

c.

Impact the total book value of operating assets reported on the balance sheet and the amount of net income reported during a period for a company.

d.

Have no impact on the book value of operating assets on the balance sheet or the amount of income reported during an accounting period for a company.

a.

Impact the total book value of operating assets reported on the balance sheet, but has no effect on the net income reported during an accounting period for a company.

b.

Impact the amount of net income reported during an accounting period, but has no effect on the total book value of operating assets on the balance sheet.

c.

Impact the total book value of operating assets reported on the balance sheet and the amount of net income reported during a period for a company.

d.

Have no impact on the book value of operating assets on the balance sheet or the amount of income reported during an accounting period for a company.

Explanation / Answer

The correct answer is OPTION (c) Impact the total book value of operating assets reported on the balance sheet and the amount of net income reported during a period for a company.

This is because when a revenue expenditure is capitalized, the said amount is not reflected (or charged to) in Income Statement as an expense. Hence, Net Income would be overcasted. Also, operating assets will increase if such revenue expenditure is capitalized and taken to balance Sheet.

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