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

The acquisition of a new asset increases the asset base of the investment center, which can lead to a lower return on investment (ROI) initially, as the new asset has not yet contributed to income, thus having a negative effect on performance measurement.

SuitCity Purchased an Operating Asset Expected to Benefit the Company