Polymedica Case

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  • Topic: Depreciation, Expense, Asset
  • Pages : 2 (495 words )
  • Download(s) : 387
  • Published : February 5, 2013
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Caz Polymedica(A)
Q: Explain difference between an asset and an expense
A:
Assets are resources controlled by the entity as a result of past events and from which future economic benefits are expected into next accounting periods. Expenses are costs related to running the business, in order to earn revenues. An "expense" is that economic portion of an asset that has been used up within the accounting period.

Q: Explain the role of advertising in the company’s customer acquisition strategy. A: The role of direct response television was to reach a larger portion of eligible customer, which resulted in a significant increase of sales.

Q: What are the arguments in favor of capitalizing the direct-response expenditures? What are the arguments in favor of expensing the direct-response advertising expenditures as incurred? As a CEO of Polymedica, would you favor capitalizing or expensing the direct response advertising cost? A:

Arguments in favor of capitalizing the direct-response expenditure: * In capitalizing the direct-response advertising, the effectiveness of the advertising is directly related to the amount of sales. * Capitalizing costs and depreciating them over time will show a higher profitability in the early years. Hence, a company who capitalizes cost will show higher profitability ratios in short time and lower ratios in the later periods. * Higher total assets

* Cash flow from operations higher than if the choice is for expensing Arguments in favor of expensing the direct-response advertising expenditures as incurred: * In later years, the company that expenses costs will have a higher profitability than it would have had if it capitalized them. In line with this, it would also show a more realistic picture of income performance

4. Q: Impact ……?
A: PolyMedica understated operating expenses, overstate assets, and create a false impression of operating efficiencies.. The assets will be reduced from US$ 250,969 to US$...
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