Recording an item as capital expenditure instead of revenue expenditure will result in:
A)higher recorded net profit and lower recorded net assets
B)lower recorded net profit and higher recorded net assets
C)lower recorded net profit and lower recorded net assets
D)higher recorded net profit and higher recorded net assets

Question

Quizplus · Accepted Answer

When an item is recorded as a capital expenditure, it is added to the company's assets and depreciated over time. This results in a higher recorded net assets value. Additionally, because the expense is spread out over time through depreciation, there is a lower impact on the company's net profit in the short term. Therefore, recording an item as a capital expenditure will result in higher recorded net profit and higher recorded net assets.

Recording an Item as Capital Expenditure Instead of Revenue Expenditure