As compared to rental and leasing methods to acquire computer systems for a…
2015
As compared to rental and leasing methods to acquire computer systems for a Management Information System (MIS), purchase method has following advantage:
- A.
It has high level of flexibility
- B.
It does not require cash up-front
- C.
It is a business investment
- D.
Little risk of obsolescence
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Correct answer: C
Answer: Purchasing is a business investment because the acquired system becomes a capital asset.
Purchased systems are recorded as capital assets on the balance sheet and can be depreciated for accounting and tax purposes.
Ownership gives the organization long-term control over configuration, customization, and use without ongoing lease restrictions.
Potential long-term cost savings can occur if the system is used for many years compared with repeated leasing or rental payments.
Trade-offs: purchase usually requires higher up-front cash or financing, increases responsibility for maintenance, and carries a greater risk of obsolescence compared with leasing or renting.
Therefore, the primary advantage of purchase versus renting or leasing is that it is treated as a business investment (an owned capital asset) with associated accounting and long-term control benefits.