The following question relates to PQR,which has the following ratios: return on assets, (ROA)10 per cent;return on equity (ROE)12 per cent;and current ratio (CR)of 1.8:1.
-The company changed accounting methods by deciding to capitalise rather than expense a research and development outlay.This will:
A) increase ROE,but have no effect on ROA and CR.
B) increase ROA,ROE and CR.
C) increase ROA and ROE,but have no effect on CR.
D) have no effect on ROA,ROE or CR.

Question

Quizplus · Accepted Answer

Capitalizing rather than expensing a research and development outlay increases assets and equity, thus improving ROA and ROE by spreading the cost over time. However, it doesn't directly affect the current ratio, which measures short-term liquidity.

The Following Question Relates to PQR,which Has the Following Ratios