Capitalize vs Expense

O

Only5mia

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
As I was reading FRA Chapter 17 on long-lived assets, specifically capitalizing versus expensing, I came across Example 1 (pg 51). From the example, it seems that company CAP capitalized the 900 in year 1, whereas company NOW expensed the 900 in year 1. But when you just bought something and decided to capitalize it, do you first add the asset to your balance sheet at the time of purchase, then wait for the next period to start depreciating, in this case, Year 2? In the exhibit, it looks like it starts depreciating right away at the time of purchase instead of waiting til the next period?
 
Hi, If you capitalize an asset today for 1000 and your depreciation is 100 per year. you are going to depreciate 100 at the end of the year, right? Thats what is done.
 
You bring the asset onto your Balance Sheet at purchase, and then begin depreciating it once the asset goes “in-service”, which means you begin using it in your business. As a practical matter, these two dates are often the same. I have seen three different equally valid policies for when to begin depreiating:
– in the month the asset goes in service
–the next month after it goes in service
–depends on in-service date. If before the 15th of the month, take a full month of depreciation. If after the 15th, wait until next month to begin depreciating.
For CFA Exam questions, look for clues as to when the asset went into service. If they say “beginnning of year” then it is probably safe to asssume that they want you to take afull year of depreciation.
 
40yoCFAcandidate wrote:
You bring the asset onto your Balance Sheet at purchase, and then begin depreciating it once the asset goes “in-service”, which means you begin using it in your business. As a practical matter, these two dates are often the same. I have seen three different equally valid policies for when to begin depreiating:
– in the month the asset goes in service
–the next month after it goes in service
–depends on in-service date. If before the 15th of the month, take a full month of depreciation. If after the 15th, wait until next month to begin depreciating.
For CFA Exam questions, look for clues as to when the asset went into service. If they say “beginnning of year” then it is probably safe to asssume that they want you to take afull year of depreciation.
Click to expand...
 
In the example, it says “At the beginning of operations, each company pays 900 to purchase equipment.” So I assume they pay 900 at the beginning of year 1, so then by the end of year 1, we need to take a full year of depreciation, thus explains what’s shown in the solution.
 
There you go then. If they made the purchase in January, company management could not justify taking zero depreciation in Year 1. If they made the purchae in December, then no problem taking zero in Year 1, if that is the company’s documented policy.
 
You must log in or register to reply here.
Back
Top