The Effect of Capitalising Expenditures Is To

question 31

Multiple Choice

The effect of capitalising expenditures is to:

• A) decrease current period profit, increase current period assets and decrease future period equity.
• B) increase current period profit, increase current period assets and decrease future period profit.
• C) increase current period profit, decrease current period assets and decrease future period liabilities.
• D) increase current period profit, increase current period equity and increase future period profit.

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Definitions:

Pure Discount Bond

A type of bond that is purchased at a price lower than its face value, with the face value being repaid at the time of maturity. It does not pay periodic interest.

Risk-Free Rate

The theoretical return on investment with zero risk of financial loss, often represented by the yield on government bonds.

Call Option Contracts

Financial derivatives that give the buyer the right, but not the obligation, to buy an underlying asset at a specified price within a certain period.

Option Premium

The price paid by the buyer to the seller to acquire the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a specified price within a specified period.