Under IFRS, many intangible assets are expensed instead of capitalized.What is the effect on the future years of expensing intangible assets on the following ratios?
$\begin{array}{ll}&\text { Profit } & \text { Debt-to } \
&\text { Margin } & \text { Assets }\\hline
A.&\text { Overstated } & \text { Overstated } \
B.&\text { Overstated } & \text { Understated } \
C.&\text { Understated } & \text { Overstated } \
D.&\text { Understated } & \text { Understated }
\end{array}$

Question

Under IFRS, many intangible assets are expensed instead of capitalized.What is the effect on the future years of expensing intangible assets on the following ratios?
 $\begin{array}{ll}&\text { Profit } & \text { Debt-to } \
&\text { Margin } & \text { Assets }\\hline
A.&\text { Overstated } & \text { Overstated } \
B.&\text { Overstated } & \text { Understated } \
C.&\text { Understated } & \text { Overstated } \
D.&\text { Understated } & \text { Understated }
\end{array}$

Quizplus · Accepted Answer

Expensing intangible assets reduces net income, which lowers profit margin. It also reduces total assets, which lowers the debt-to-assets ratio.

Under IFRS, Many Intangible Assets Are Expensed Instead of Capitalized