Schweser distinguishes identifiable and impossible-to-establish-value assets. But the whole classification list is killing me with all these “however”. Is there any logic underlying the capitalization/expensing decision? Or it’s gonna be a pure memorization? :((
I think it is: Capitalize if: lease period> 75% pf asset life or PV of payments> 90% of fair value of asset or A bargain purchase exist at the end of the lease (if the lesee can buy it below market value at the end of the lease) Where are you seeing this “Schweser distinguishes identifiable and impossible-to-establish-value assets”. What book/page number? I don’t recall this…
thats capitalize Lease. Hes talking about capitalizing expenses, such as R&D, and this intangible asset such as patents. U just have to memorize it. I plan on writing that section down several times
I try to remember it by saying everything you do inside the company is expensed - but everything you buy from outside you capitalise. Exceptions: Internally developed software (once feasible) are capitalised in the US. Goodwill: A whole topic unto itself! I don’t look upon this as an asset, more an accounting convention to make A=L+E hold. In the US, you carry it at book with no amortisation, but have to review it for impairment. In the UK it’s amortised at a minimum rate (5% iirc). ______ I get confused with what the effect of capitalising vs expensing is on the various ratios. I’ve tried learning them, but I keep missing something. oh well.
yeh this is tough…i think im just gonna wing this topic…if it comes up, take a stab in the dark… i’ve got more important topics to worry about
Just reviewed this topic. Another exception is legal fee for patent developed internally.
To summarize: Exceptions are internally created software (until technologicaly feasible) and Legal fees for patents developed internally Other than that, intangile assets created internally are expensed and intangible assets acquired externally are capitalized (brands, trademarks, patents, etc…) The way I remember capitalized vs expensing costs impact on ratios is: Capitalizing costs leads to higher assets and therefore lower turnover ratios Capitializing also leads to lower income variability (smoother income) due to lower expenses Expensing costs are the opposite Firms generally prefer capitializing costs versus expensing them I know I’m missing a few other points, but this is my 2 cents…