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From year one to year two the ratio of sales to fixed assets declined significantly. This is a possible indication that:
a. The client is over depreciating fixed assets
b. The client is capitalizing costs that should be expensed
c. The client has used debt to finance acquisitions of fixed assets.
d. The client has treated capital leases as operations leases.

Answer :

The decline of sales to fixed assets ratio is a possible indication that b) the client is capitalizing costs that should be expensed

A sale is an exchange of goods or services for a predetermined amount of money. An asset that cannot be readily converted into cash is referred to as a fixed asset in accounting. Long-lived assets, property, plant, and equipment are other names for it. Current assets, which include liquid assets like cash and bank accounts, are different from fixed assets. The sales to fixed asset ratio, a measure of asset utilization, can be used by investors to determine how well a company utilises its assets to generate revenue. This ratio shows how frequently the corporation transfers its fixed assets on an annual basis.

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