- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 3. Expense Recognition - Long-Lived Assets
CFA Practice Question
If a company is the only one in the industry to capitalize certain costs, while others treat them as expenses, the company is expected to ______, other things being equal.
B. be more liquid
C. have a higher revenue
A. be more profitable
B. be more liquid
C. have a higher revenue
Correct Answer: A
While it may appear more profitable, the company might have lower confidence in the quality of the reported numbers.
User Contributed Comments 5
| User | Comment |
|---|---|
| Wassimes95 | explain please? |
| SRI2010 | Profitability increases by the amount that is capitalized. Had it been expensed, the operating income would have decreased. |
| sarasyed5 | what is the difference between being more profitable n having a higher revenue? |
| khalifa92 | revenue is sales before deducting anything profitable means after deduction everything we still have a higher NI |
| VazquezCol | Profitability is measured by Net Profit Margin, ROE or ROA (or others). A is correct only during early years, after that the answer would incorrect. The only reason to make A the correct answer is because B and C are false all the time, making A the only option that contains some truth in it |