explain the meaning of capitalising income
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In response to first part of your query, over-capitalisation can be defined as a situation when a company fails to earn sufficient return on its invested capital over the years.On the other hand, under-capitalisation can be defined as a situation when a company succeeds in earning excessively large profit continuously in an extra ordinary manner.
In response to second part of your query, causes of over-capitalisation
1. Promotion of company with inflated assets
2. High promotion expenses
3. Shortage of capital also gives rise to over-capitalisation.
Causes of under-capitalisation
1. Less promotion expenses
2. Underestimation of profits
3. Creation of excessive reserves
In response to second part of your query, causes of over-capitalisation
1. Promotion of company with inflated assets
2. High promotion expenses
3. Shortage of capital also gives rise to over-capitalisation.
Causes of under-capitalisation
1. Less promotion expenses
2. Underestimation of profits
3. Creation of excessive reserves
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