If Halley Industries reimburses employees who earn master\'s degrees and who agr
ID: 2697448 • Letter: I
Question
If Halley Industries reimburses employees who earn master's degrees and who agree to remain with the firm for an additional 4 years, should the expense of the tuition reimbursement be categorized as a capital expenditure or an operating expenditure? Answer a. The tuition reimbursement should be categorized as a operating expenditure since the outlay of funds represents an expense incurred in transacting normal business operations b. The tuition reimbursement should be categorized as a capital expenditure since the outlay of funds represents an expense incurred in transacting normal business operations c. The tuition reimbursement should be categorized as a operating expenditure since the outlay of funds is expected to produce benefits over a period of time greater than 1 year d. The tuition reimbursement should be categorized as a capital expenditure since the outlay of funds is expected to produce benefits over a period of time greater than 1 year If Halley Industries reimburses employees who earn master's degrees and who agree to remain with the firm for an additional 4 years, should the expense of the tuition reimbursement be categorized as a capital expenditure or an operating expenditure? The tuition reimbursement should be categorized as a operating expenditure since the outlay of funds represents an expense incurred in transacting normal business operations The tuition reimbursement should be categorized as a capital expenditure since the outlay of funds represents an expense incurred in transacting normal business operations The tuition reimbursement should be categorized as a operating expenditure since the outlay of funds is expected to produce benefits over a period of time greater than 1 year The tuition reimbursement should be categorized as a capital expenditure since the outlay of funds is expected to produce benefits over a period of time greater than 1 year a. The tuition reimbursement should be categorized as a operating expenditure since the outlay of funds represents an expense incurred in transacting normal business operations b. The tuition reimbursement should be categorized as a capital expenditure since the outlay of funds represents an expense incurred in transacting normal business operations c. The tuition reimbursement should be categorized as a operating expenditure since the outlay of funds is expected to produce benefits over a period of time greater than 1 year d. The tuition reimbursement should be categorized as a capital expenditure since the outlay of funds is expected to produce benefits over a period of time greater than 1 yearExplanation / Answer
Answer is Option D
This is an application of Matching Principle of Accountancy. The matching principle directs a company to report an expense on its income statement in the same period as the related revenues.
Now, in this case the expense that company incurs in reimbursement of educational expenses, for the employees for which company reimburses value, they are expected to stay at the firm for 4 years. So, this is like an expense (or rather than investment) for the company of which it can reap benefits for 4 years. Hence, this cost should be capitalized as this investment is expected to pay off returns for next 4 years. (it is like a prepaid expense for 4 years and would be amortized each year till 4 years!)