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What does it mean to “capitalize” a cost and how does that compare to “expensing” the cost?

What does it mean to “capitalize” a cost and how does that compare to “expensing” the cost? 

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Expert Solution

CAPITALISE MEANS ADDING ALL THE COSTS INCURRED TO THE DEBIT OF ASSETS WHICH ENHANCE THE LIFE OR USEFULNESS OF THE ASSETS AND WILL CONTINUE TO PROVIDE ECONOMIC INFLOW FOR MORE THAN ONE ACCOUNTING PERIOD.

EXAMPLE: COST INCURRED ON INSTALLATION OR MAKING ASSET READY TO USE, THESE COST ARE CAPITALISED.

EXPENSING MEANS COST INCURRED ON ASSET TO CONTINUE THE OPERATIONAL USAGE OF THE ASSETS AND WHICH ARE GOING TO PROVIDE ECONOMIC BENEFIT DURING THE PARTICULAR ACCOUNTING PERIOD ONLY.

EXAMPLE: REPAIRS OF THE MACHINERY WHICH ARE MINOR IN NATURE AND ARE NOT GOING TO ENHANCE EFFICIENCY OF AN ASSET, THESE COSTS ARE EXPENSED OFF IN THE PERIOD INCURRED.

ekkarill92 answered 1 year ago
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