Recently, a Group of University Students Decided to Incorporate for the Purposes

question 22

Essay

Recently, a group of university students decided to incorporate for the purposes of selling a process to recycle the waste product from manufacturing cheese. Some of the initial costs involved were legal fees and office expenses incurred in starting the business, state incorporation fees, and stamp taxes. One student wishes to charge these costs against revenue in the current period. Another wishes to defer these costs and amortize them in the future. Which student is correct and why?

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Definitions:

Desired Rate

The desired rate often refers to the target interest rate set by central banks, or it could imply the expected return rate on investments by individuals or businesses.

Capital Investment Analysis

Evaluation processes used by businesses to assess the potential profitability and risk of investment opportunities.

Fixed Assets

Long-term tangible assets that are used in the operations of a business and are not intended for sale, such as buildings, machinery, and equipment.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment or project, calculating the difference between the present value of cash inflows and outflows.