Positive accounting theory predicts that large sized entities will choose not to capitalise their exploration and evaluation expenditures to reduce likelihood of violating debt covenants.

Question

Quizplus · Accepted Answer

Positive accounting theory actually predicts that firms, especially those close to violating debt covenants, might choose to capitalize costs rather than expense them to improve their reported financial position, not specifically related to the size of the entity or the nature of the expenditures as exploration and evaluation.

Positive Accounting Theory Predicts That Large Sized Entities Will Choose