The problem with a "blanket rule" requiring all expenditure of a particular type to be written off as incurred (e.g.,expenditure on research),is:
A) that it is too much like US GAAP.
B) it does not enable readers of financial reports to differentiate between entities that have generated future economic benefits from particular activities and those who have not.
C) it does not enable readers of financial reports to differentiate between entities that have managed their earnings and those who have not.
D) it does not enable readers of financial reports to differentiate between entities that are going to continue to be successful and those who are not.
E) it does not enable readers of financial reports to make their own judgements about the future worth of the entity.

Question

Quizplus · Accepted Answer

A blanket rule that requires all expenditure of a particular type to be written off as incurred does not enable readers of financial reports to differentiate between entities that have generated future economic benefits from particular activities and those who have not. It could be misleading for stakeholders because some expenditures on research or other activities could lead to future benefits or generate revenue streams that would contribute to the entity's future profitability. Therefore, it is important for financial reports to provide information that enables stakeholders to differentiate between entities that have generated future economic benefits from particular activities and those who have not, which a blanket rule cannot provide.

The Problem with a "Blanket Rule" Requiring All Expenditure of a Particular