Certified Government Financial Manager (CGFM) Practice Exam 2025 – Your All-in-One Guide to Exam Success!

When property is being prepared for sale, costs related to capitalized obligations should indeed be capitalized instead of expensed. This is because capitalized costs are typically associated with improvements or expenditures that enhance the asset’s value over time or extend its useful life.

In the case of a property being prepared for sale, treating these costs as capitalized reflects the expectation that these expenditures will contribute to the property’s value at the time of sale. Such costs add to the basis of the asset and could potentially increase the final sale price, which is important for accurately reflecting financial conditions and performance.

The option to expense the costs in the current year would not align with accounting principles that call for capitalization of costs that provide future economic benefits. Similarly, deferring the costs until sold would not be appropriate, as these costs must be recorded as part of the asset's value while the property is still in the preparation phase. Lastly, withdrawing them from the balance sheet diminishes the asset's value unjustifiably, failing to recognize that these costs are essential to making the asset sellable and potentially more valuable. Thus, capitalizing these costs is the correct approach that adheres to proper accounting practices.