melanie hart cfa is a transportation analyst hart has been asked to write a research 1557166

Melanie Hart, CFA, is a transportation analyst. Hart has been asked to write a research report on Altai Mountain Rail Company (AMRC). Like other companies in the railroad industry, AMRC’s operations are capital intensive, with significant investments in such long lived tangible assets as property, plant, and equipment. In November of 2008, AMRC’s board of directors hired a new team to manage the company. In reviewing the company’s 2009 annual report, Hart is concerned about some of the accounting choices that the new management has made. These choices differ from those of the previous management and

from common industry practice. Hart has highlighted the following statements from the company’s annual report:

 

Exhibits A and B contain AMRC’s 2009 consolidated income statement and balance sheet. AMRC prepares its financial statements in accordance with International Financial Reporting Standards.

 

 

With respect to Statement 1, which of the following is the most likely effect of management’s decision to expense rather than capitalize these expenditures?

A. 2009 net profit margin is higher than if the expenditures had been capitalized.

B. 2009 total asset turnover is lower than if the expenditures had been capitalized.

C. Future profit growth will be higher than if the expenditures had been capitalized.