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Hi.
Many companies tend to write off some items that appear to be fixed assets from another companies perspective. Eg. 15$ mobile phone, etc. items of an immaterial nature.
As a consultant how should I advise a company of the approporiate cut off point.
What should be an applicable capitalization policy for a company?One company I know had a capitalization policy whereby if an item was less than 1% of turnover, they would write off. However, they were told to choose another policy that appeared to be less subjective, as turnover changes every year.
It’s a very subjective area! Write off those items that are, in value terms, immaterial. But what’s material? Only the board can decide that. And don’t forget that where a group of assets are acquired (say5,000 mobile phones for distribution amongst the employees) in aggregate that value could b ematerial even though individual phones aren’t.
Let the board decide a policy, let the auditor agree reasonableness, and then stick to that policy.
Probably better to arrive at an amount to be considered immaterial – say $1,000 – but that value is clearly dependent upon the individual company. I was lecturing materiality many years ago and a student said “Mike, the job I was on before I came on the course was a company where we found an error for £5 million but we ignored it on the grounds of immaterialty”
There’s no hard and fast rule that I can suggest (nor one that you can suggest, either!)
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