SuitCity purchased an operating asset expected to benefit the company for 10 years for a cost of $100,000 cash.The old operating asset was fully depreciated and was kept in operations.What effect will acquiring this asset have on the performance measurement of an investment centre?

Question

Quizplus · Accepted Answer

Purchasing a new asset for $100,000 cash and keeping the fully depreciated old asset in operations will initially have a negative effect on the performance measurement of an investment center. This is because the investment center's expenses increase due to the cash outflow for the new asset, without an immediate increase in revenues or reduction in other expenses. Additionally, the asset's cost will be depreciated over its useful life, affecting future periods' performance measurements.

SuitCity Purchased an Operating Asset Expected to Benefit the Company