Capitalizing an asset on the balance sheet has the following effect: A. Increases return on assets B. Decreases return on assets C. Does not effect return on assets D. Results in a lower net income during periods of growth My question is how do we know if they are asking about early year/later year…
The answer is A. If they don’t specify time period, I always assume that they are talking about current period. Do others agree?
The answer should be (B), I think. When capitalizing, ROA will be smaller in the early years due to lower net income in the early years relative to expensing. As “the show NY” mentioned, I think it’s fair to assume they’re talking about the current year/period unless noted otherwise. Or one of the answer choices is something like, “ROA will be smaller in the early years, and bigger in the later years”.
tozerrt, NI will be higher in first year for capitalization… By the way, answer is B… they are assuming later years…
sumit, you are right that first year NI and ROA is higher. However, how do you know they’re talking about later years?
I caught the error in my original post about 10 seconds after I hit the “Post Message” button…it’s getting late
i am assuming so b/k capitalization results in lower ROA in later years…