Hypothetical situation: as our intern, you are working with one of our sites on the accounting...

Hypothetical situation: as our intern, you are working with one of our sites on the accounting for the purchase of new equipment. The site believes that this equipment should be capitalized as a fixed asset on the balance sheet, but based on your reading of our capitalization policy, you are not sure. What actions would you take in this situation?

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Expert Solution

As mentioned in the question, the site believes that this equipment should be capitalized as a fixed asset on the balance sheet, but based on my reading of capitalization policy, I am not sure. To determine, I should perform following measures -

Generally, the rules for determining whether or not an asset is capitalised are based on if the asset will have a useful life that is greater than one year and the cost of the asset is above a threshold that is set by the business. For example, a small business might set a threshold of $500.

CAPITALIZATION POLICY- Fixed assets should be capitalized when all the following criteria are met:

1- The asset is tangible or intangible in nature, complete in itself, and is not a component of another
capitalized item.

2- The asset is used in the operation of the Council’s activities.

3- The asset has a useful life of one year or more and provides a benefit throughout that period.

4- The assets should be capitalized if its cost is $5,000 or more.

ekkarill92 answered 1 year ago

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