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