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Which of the following measures initially decrease as a result of a firm’s decision to capitalize its expenditure instead of expensing them?

A. Total assets.

B. debt-to-equity.

C. Cash outflows from operations.

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Question added by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies
Date Posted: 2015/07/01
Shahbaz Hayder
by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies

Yes, Option C is the right answer.

Answer is cash outflow from operations. ....if they are expensed, should have been decreased. ..

Zehab Osman
by Zehab Osman , Accountant , Aldar Consultancy Co.

C-------------------------------------------------------

mehfooz alam khan habib khan
by mehfooz alam khan habib khan , Security Incharge , Landmark Group (Emax)

Option (A) total Asset turnover will b decrease in case of capitalize its expenditures......

Abdul Hakeem
by Abdul Hakeem , Manager Finance & Operation , Samuel Packaging Systems Group

Expenditure Capitalization creates3 impacts 

1-Total asset value goes up

2-Company profit goes up &

3-Cash outflow from operation goes down (because expense amount will be shown under investing activity )

 

Therefore (C) is the right answer.  

 

 

lakshminarasimham mallareddi
by lakshminarasimham mallareddi , Manager Finance & Accounts , M/s. Vandana Global Limited, Raipur, Chhattisgarh

Correct Answer is A. Total Assets is the measure in which firm's decision to capitalize its expenditure instead of expense them.

Shazia Anees
by Shazia Anees , Assistant Manager Finance , Arham Trading Company

option C=====================

Ahmed Hassanin CMA
by Ahmed Hassanin CMA , Financial Planning and Controlling Manager , Methode Electronics

C. Cash outflows from operations.  

Ahmer Zamir
by Ahmer Zamir , Consultant , Saleem Associates & Co

The correct option is B) debt-to-equity

The rational of this option is that if the firm decides to capitalize its expenditures  which already have been incurred or paid then such measure would increase the value of total assets instead of any decrease and also such decision doesn't have any impact on cash flow from operation because cash is not flowing out it by way expenditures  it is  only capitalizing .

The only measure would be decreased is debt-to-equity ratio, because as a result of capitalization fixed or total assets will increase consequently it will increase equity  (Assets-Liabilities =Equity) and total liabilities are intact or no change in it so that debt -to-equity ration will be decreased or equity will be improved against total debt. 

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