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?

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 2 years ago

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