Use the information below to answer the following questions:
Plant Hire Ltd has been in business for one year. The company makes it a practice to capitalise a portion of its advertising costs as a ‘deferred asset’ and to amortise them at 25% per annum. The accountant has suggested to the general manager that the policy of capitalising advertising should be ended because the economic benefit of the expenditures is not clearly determinable. The amount of advertising capitalised this year was $100 000.
-What effect would such a policy change have on cash flow from operations?

Question

Use the information below to answer the following questions:
Plant Hire Ltd has been in business for one year. The company makes it a practice to capitalise a portion of its advertising costs as a ‘deferred asset’ and to amortise them at 25% per annum. The accountant has suggested to the general manager that the policy of capitalising advertising should be ended because the economic benefit of the expenditures is not clearly determinable. The amount of advertising capitalised this year was $100 000. 
-What effect would such a policy change have on cash flow from operations?

Quizplus · Accepted Answer

Capitalizing advertising costs does not affect cash flow from operations; it only affects the presentation in the financial statements. The cash outflow for advertising has already occurred, so changing the policy would not impact cash flow.

Use the Information Below to Answer the Following Questions