If It Is Not Probable That Expenditure Will Generate Future

question 4

Multiple Choice

If it is not probable that expenditure will generate future benefits,the accounting treatment should be:

• A) to treat it as a deferred asset.
• B) to amortise it over a period of no more than two operating cycles.
• C) to expense it.
• D) to treat it as unearned revenue.

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Definitions:

Absorption Costing

A method of accounting which integrates all costs related to manufacturing, from direct materials and labor to variable and fixed overhead, into the product’s pricing.

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed overheads—in the cost of a product.

Variable Costing Income Statement

An income statement format that deducts only variable costs from sales to compute contribution margin, followed by the deduction of fixed costs to determine net income.

Net Operating Income

The profit generated from the normal operational activities of a business, excluding other income and expenses such as interest and taxes.