Expensing a Building in the Year of Purchase Represents an Abuse

question 21

Multiple Choice

Expensing a building in the year of purchase represents an abuse of which of the following accounting conventions?

• A)Full disclosure
• B)Cost-benefit
• C)Conservatism
• D)Consistency

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Definitions:

Excess Capacity

The condition where a business produces less than the maximum amount possible, often leading to inefficiency.

Average Total Cost

The total cost of production divided by the quantity produced, taking into account both fixed and variable costs.

Excess Capacity

The situation where a company is producing less than its full potential output due to lack of demand or other constraints.

Efficient Scale

The level of production at which a firm achieves the lowest average total cost, with economies of scale fully exploited.