04-19-2007, 08:41 PM
Dear,
Thank you for your response.
I know cost benefit analysis helps in deciding what to capitalize or not. This makes a part of management's accounting estimates. However, it is a matter of judgment from case to case basis. This should not result in settling down a subjective thresh-hold. By the way, none of my clients has adopted this accounting policy. They may not be capitalizing each and every item but it is the matter of case to case analysis based upon cost-benefit estimation. Yes, off course calculators and other such nominal value items are not capitalized.
If an entity estimates that the future benefit of an item is so meager that categorizing it as a capital item would lead to excessive cost than its benefits, then off course, such item needs not to be capitalized. But again closed eye thresh-hold will some time make the things adverse.
However, in my view, specifying a thresh-hold is not a measure of cost and benefit.
Just for example, if some component of a plant (that falls under the recognition criteria of IAS 16)is not available in local market and is of immense importance to the operating capability of the plant, should be capitalized irrespective of its value. Becoz, its benefits are off course enormous that may have to be analysed on qualitative grounds. In such cases, a fixed thresh-hold would not be a good measure for making an acounting estimate.
However, as you said, that inventory record of such items is also being maintained by the entity discussed by you, then it will create a sufficient control for safe gaurding such lower value assets.
Thank you very much for your comments for me. I am off course a humble creature of God and do not have any claim for perfection.
Best regards,
Kamran.
Thank you for your response.
I know cost benefit analysis helps in deciding what to capitalize or not. This makes a part of management's accounting estimates. However, it is a matter of judgment from case to case basis. This should not result in settling down a subjective thresh-hold. By the way, none of my clients has adopted this accounting policy. They may not be capitalizing each and every item but it is the matter of case to case analysis based upon cost-benefit estimation. Yes, off course calculators and other such nominal value items are not capitalized.
If an entity estimates that the future benefit of an item is so meager that categorizing it as a capital item would lead to excessive cost than its benefits, then off course, such item needs not to be capitalized. But again closed eye thresh-hold will some time make the things adverse.
However, in my view, specifying a thresh-hold is not a measure of cost and benefit.
Just for example, if some component of a plant (that falls under the recognition criteria of IAS 16)is not available in local market and is of immense importance to the operating capability of the plant, should be capitalized irrespective of its value. Becoz, its benefits are off course enormous that may have to be analysed on qualitative grounds. In such cases, a fixed thresh-hold would not be a good measure for making an acounting estimate.
However, as you said, that inventory record of such items is also being maintained by the entity discussed by you, then it will create a sufficient control for safe gaurding such lower value assets.
Thank you very much for your comments for me. I am off course a humble creature of God and do not have any claim for perfection.
Best regards,
Kamran.
