When comparing expensing or capitalizing (with straight-line depreciation) software, return on assets
A) will decrease over time using capitalization.
B) will increase over time using capitalization.
C) will be constant using expensing.
D) will initially be higher under expensing.

Question

Quizplus · Accepted Answer

Capitalizing software costs spreads the expense over time, leading to higher initial net income and assets, thus increasing return on assets over time as depreciation reduces net income less than expensing would.

When Comparing Expensing or Capitalizing (With Straight-Line Depreciation) Software, Return