The following question relates to PQR, which has the following ratios: return on assets, (ROA) 12 per cent; return on equity (ROE) 14 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 potentially increasing both ROA and ROE as these ratios are based on assets and equity respectively. However, it does not directly affect the current ratio, which is concerned with current assets and liabilities.

The Following Question Relates to PQR, Which Has the Following