If a company classifies an expenditure as a capital expenditure instead of a revenue expenditure, which of the following will be false?
A) Profit for the year of acquisition will be higher.
B) Depreciation expense will be higher over the asset's life.
C) It will be expensed in the year in which the expenditure takes place.
D) The initial cost basis of the asset will be higher.

Question

Quizplus · Accepted Answer

If a company classifies an expenditure as a capital expenditure instead of a revenue expenditure, it will be capitalized and expensed over the life of the asset through depreciation. This means that the initial cost basis of the asset will be higher, and the depreciation expense will be higher over the asset's life. However, it will not be expensed in the year in which the expenditure takes place, as it will be capitalized and expensed gradually through depreciation. Profit for the year of acquisition may or may not be affected, as it depends on other factors.

If a Company Classifies an Expenditure as a Capital Expenditure