2. (TCO C) Recently, a group of university students decided to incorporate for t

Question

2. (TCO C) Recently, a group of university students decided to incorporate for the purposes of selling a process to recycle the waste product from manufacturing cheese. Some of the initial costs involved were legal fees and office expenses incurred in starting the business, state incorporation fees, and stamp taxes. One student wishes to charge these costs against revenue in the current period. Another student wishes to defer these costs and amortize them in the future. Which student is correct and why? (Points : 15)

Explanation / Answer

Initial costs involved for incorporation of business like legal fees and office expenses incurred in starting the business, state incorporation fee, and stam taxes will not have certian period of life and if u want to amortize them we need to amortize for the life of the business. Therefore, those all costs in the revenue nature shall be charged against the revenue and Expenses in fixed in nature shall be treated assets.

All the mentioned expenses in the question are revenue in nature.

Therefore, student wishes to charge these costs against revenue in the current period is correct.

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