Throughout the current year, Chan Company treated sales taxes paid on purchases of PPE assets as revenue expenditures. As a result, the current year's:

Question

Quizplus · Accepted Answer

Treating sales taxes paid on purchases of PPE assets as revenue expenditures results in the depreciation expense being understated. This is because the cost of PPE assets includes not only the purchase price but also any additional costs incurred to make the asset ready for use, such as installation and sales taxes. These additional costs should be added to the cost of the asset and depreciated over the useful life of the asset. By treating sales taxes as revenue expenditures, Chan Company is not adding these costs to the cost of the assets, resulting in an understatement of depreciation expense.

Throughout the Current Year, Chan Company Treated Sales Taxes Paid