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Capitalization Policy

I'm looking for a written template of a Capitalization/Fixed Asset Policy that anyone would be willing to share. Thanks.

Answers

Anonymous
(Vice President, Capital Planning) |

I cannot share a policy, but a few tips:
1. Be thoughtful about the threshold you set for capitalizing vs. expensing. If you set it too high, your EBITDA and net income will suffer, but if you set it too low, then you will have to devote more resources to running your fixed asset ledger, tracking disposals, etc. Suggestions: Small companies $1,000; medium companies $3,000; large companies $5,000 or even $10,000 (you will make up what you lose in expensed items below the threshold in reduced fixed asset accounting payroll, etc.)
2. Avoid "Bulk Purchase" loopholes. If you set your capitalization threshold at $1,000, make every item be $1,000 or more and do not allow purchases of 20 $50 items to be capitalized "in bulk" unless you are committed to tracking, depreciating, and disposing of each of those little assets.
3. Be prepared for personnel compensated on EBITDA to attempt various financial gymnastics to get something capitalized, no matter what policy you set.

James Xu
Title: Cost Accountant
Company: Landmark
LinkedIn Profile
(Cost Accountant, Landmark) |

relating to your 2nd point, what if a company purchases 10 computer hardware (eg. monitors) at $80 each, do you capitalize them as a group i.e. computer hardware or you expense them? assuming your capitalization threshold at $1k.

Anonymous
(Director of Finance) |

Just as a clarification, we have a policy including thresholds, timing, and general procedures; however, it is mostly verbal (not written/documented) so that when we go through our annual CPA review, I always get asked if we have it in writing. I need to be able to produce a document with appropriate wording. Thanks.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I agree with VP,Capital Planning.

Too many firms capitalize too many items for no real apparent gain. I tend to use $1K, $5k and $10K groupings (based on company size/industry/item) ultimately ask your auditors if they agree and if not, why.

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