Capitalisation
Capitalisation means recognising expenditure as part of an asset’s carrying amount rather than immediately recognising it as an expense. It is appropriate only when the relevant asset-recognition and measurement requirements are met. Depending on the asset, the capitalised amount is subsequently depreciated, amortised, tested for impairment or charged to expense when the asset is sold or consumed.
Worked example
A machine costs $12,000 and requires $800 delivery and installation to be ready for use. If these are directly attributable qualifying costs, capitalise $12,800. A separate $300 routine repair after it enters service is normally an expense.
Common mistake
An expensive item or a hoped-for future benefit does not by itself justify capitalisation. Research expenditure and qualifying development expenditure have different treatments.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | F1 | Direct | July 2027–August 2028 |
| ACCA | F2 | Direct | July 2027–August 2028 |
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: capitalise, capitalize