Discuss the meaning of capitalizing the expenditure and the factor which determines whether expenditure can be capitalized.
Explanation of Solution
Capitalization of costs:
Capitalization of costs are considered as the part of fixed assets instead of stating them as expenses during the period in which they are incurred and capitalized costs are identified over a period of time through amortization or
Factor determining whether the expenditure can be capitalized:
The factor which determines whether the expenditure can be capitalized is the future economic benefit. If the expenditure provides benefit even after the end of the current accounting period, then such expenditure can be capitalized. If the benefit provided by the expenditure is used up before the end of the current accounting period, then such expenditure should be expensed.
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Chapter 8 Solutions
Financial Accounting, Student Value Edition (4th Edition)
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