Lazlo Ltd a European-based telecommunications pro
Lazlo Ltd, a European-based telecommunications providers, follows IASB GAAP and capitalizes new product development costs. During 2012 they spent €25 million on new product development and reported an amortization expense related to a prior year’s new product development of €10 million. Other information related to 2012 is as follows:
An analyst would like to compare Lazlo to a US-based telecommunications provider and has decided to adjust their financial statements to U.S.GAAP. under U.S.GAAP, and ignoring tax effects, the return on asset (ROA) and cash flow from operations (CFO) for Lazlo would be closestto:
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2024-11-15 01:21:28
Ans:C.
If all development costs had been expensed then net income would be reduced by the amount spent, and increased by the amortization of the previously capitalized amounts: 225-25+10=210 million.
ROA=210/1,875=11.2%.
CFO would be lower by the amount spent on development 290-25=265 million.
Note: the amortization of previous development costs is a non-cash expense so does not affect cash flow.
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