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QUESTION 20 The decision to expense or capitalise an item is important because: it may have direct implications for the value
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Answer #1

The decision to capitalise or expense an item is important because, the decision will significantly impact the profit and loss statement and balance sheet of an entity.

For example, a machinery purchased for $1000, if expensed will decrease the profit to that extend.

If the above amount is capitalised, only depreciation will be expensed off.

Therefore, second option is the correct answer.

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