04-18-2007, 01:48 AM
Kamran,
Thank you for the detailed answer.
Defining a threshold for capitalization is a normal practice in Pakistan. However, it should be noted that the threshold alone is not the criteria for capitalization, the said expenditure has to meet the definition of IAS 16 (i.e control, future ecnonomic benifits, more than a single period).
Taking your example of calculator, the economic benifits are consumed over a number of year and therefore it meets the criteria set by IAS 16. But most companies will not capitalize these calculators on the basis that the amount is not material. No company will want to capitalize a calculator purchased for a nominal value say Rs 300 thus the threshold.
This threshold thus acts as a filter for materiliaty.
Regards,
Thank you for the detailed answer.
Defining a threshold for capitalization is a normal practice in Pakistan. However, it should be noted that the threshold alone is not the criteria for capitalization, the said expenditure has to meet the definition of IAS 16 (i.e control, future ecnonomic benifits, more than a single period).
Taking your example of calculator, the economic benifits are consumed over a number of year and therefore it meets the criteria set by IAS 16. But most companies will not capitalize these calculators on the basis that the amount is not material. No company will want to capitalize a calculator purchased for a nominal value say Rs 300 thus the threshold.
This threshold thus acts as a filter for materiliaty.
Regards,
