Question 5

Co. A has elected to expense all purchase of long-term assets in the year of purchase while Co B elects to capitalize such assets and depreciate over the estimated useful life by the use of the straight line method of each related asset.

Q 1-which accounting method is correct? Why?

Q2 _Justify each approach?

Q3-In year 1 of operations, Compare each of the following ratios of Co. A in comparison with Co. B's.

Briefly explain why?

+ Increase

+ decrease -

or no change

1. Profit ratio
2. Debt ratio
3. 3-current ratio

4-return on assets

5-return on equity

1. Asset turnover

7-Inventory turnover