Under general principles of expense recognition, a company should:
- apply uniform treatment for administrative and depreciation costs.
- recognize expenses in the period that it consumes the associated economic benefits.
- allocate lost economic benefits prospectively over the expected period in which the benefits would have been earned.
Solution
B is correct. In general, a company recognizes expenses in the period that it consumes (i.e., uses up) the economic benefits associated with the expenditure or loses some previously recognized economic benefit.
A is incorrect because administrative and depreciation costs are not treated uniformly; administrative costs are expensed immediately, and depreciation is allocated over time.
C is incorrect because a company recognizes expenses in the period that it loses some previously recognized economic benefit or consumes the economic benefits associated with the expenditure, not when benefits would have been earned.
