The effect that capitalization of the cost that supposed to be expensed will have is that; The assets will have to be overstated on the balance sheet, while we have to understate the expenses.
- A capitalized cost can be regarded as expense that is been added to the cost basis of a fixed asset when working on a balance sheet of a company.
- It is usually incurred during purchasing of fixed assets.
We can conclude that an asset will need to be overstated once there is capitalization of cost.
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