USA Capitalization of fixed assets as a "lot"

[cdonahoo]

Hello! I am the finance director for a Christian non-profit. I have a question about capitalizing fixed assets.

Earlier in 2014 we purchased a new phone system. Our capitalization policy states that items that are either $1,000 individually, or $3,000 as a lot, should be capitalized. Our initial purchase totaled a little over $5,000 so we capitalized it in accordance with our "lot" policy. Individually, the phones would not have met the threshold.

In March of 2015 we are purchasing 12 new phones for some new offices we are building out in our current building. Those 12 phones together will not total $3,000.

Should we expense the new phones because they do not meet our capitalization policy, or capitalize them so that they are treated exactly like other identical assets?

Thank you for your help!

Cheryl

 

[kirby]

Since the first group of phones was capitalized I would do the same for the second group.

 

[Fidget]

Cheryl,

Generally speaking, accounting policies should only be changed if in doing so is for the purpose of enhancing the true and fair presentation of your financial statements.

Therefore, if you capitalise them when your current policy says don't, then your capitalisation policy needs reviewed so as to bring them within it, along with a good reason for why the policy has changed so as to include them.

 

[Winter2014]

These phones would need to be expensed as per your capitalization policy.

 

[ColinCPA]

I agree. The new capitalization requirements would suggest that each individual phone is considered an individual "invoicable" item and should be expensed according to the policy.

 

[kirby]

Hi Cheryl
And after you read all of the above you will see why accountants are called "bean counters" (and we are!).
As you work in a Christian non-profit you are likely familiar with the "how many angels could dance on the head of a pin" arguments (from the ancient days of Scholasticism ). Which we laugh at now.
Here we have something similar. "how much in cost makes a fixed asset versus an expense' (and we'll be laughed at for following strict adherence to this - sometime in the future)

So some perspective on this.
The idea of a "capitalize stuff that costs over x" is to not be bogged down with the small stuff.
But sometimes a bunch of related small stuff adds up to one big stuff.
And above there was a position about following how things were invoiced
So
Say your policy is $3,000 if in a "lot" and you do order $3,000 worth of stuff. But there is a backorder and they deliver and invoice $1,500 now and $1,500 two months from now. Hey - two invoices! So you are forced to expense both invoices because of a backorder??
No, here you would keep in mind that the idea was to buy a related group of things and capitalize the cost as the group of assets is over $3,000. The invoicing should not control the accounting.
And it follows in your case that you bought more related things a bit later. So I argue that they still belong to the main group and need to be capitalized as well.

Or let's say you are subject to business property tax (which you probably are not but work with me here) and so you use the fixed asset listing to fill out the listing of property - well remember - if you capitalized some and not others of the phone then some of your phones are on the fixed asset list (say 40 phones) and some are not (Say 20 phones).
So you get an auditor who says "you listed 40 phones and their cost on the tax form but I see 20 more than that and they are not on your business property tax report . Are you evading tax??"

So anyway, for my vote I say keep it all together - capitalize both groups and don't sweat the small stuff ....and don't try counting angels.

 

[Fidget]

But none of that happened. The original poster is asking whether or not to capitalise items that don't meet the policy on capitalisation.

The only valid answers really are no, do not capitalise, or capitalise but review capitalisation policy with good reason so as to include these items within it.

There's no point in having a policy on anything if it's just going to be flouted. And in particular, although I'm not suggesting that this is the case here, capitalising something that doesn't meet the capitalisation policy can mean all the difference between making a small profit/surplus or loss/deficit.

 

[carnold2015]

Exciting Opportunities with a stable company in Houston TX!

Exciting opportunity for a Fixed Assets Accountant. If interested or no someone that might be send me a message

 

[bklynboy]

I also expense and we run into this situation all the time. Unless its a projcet where costs can take place over several periods, fixed items like phones are done at time of purchase according to company policy.

Now there are exceptions such as Kirby writes where you are shipped half of what you order - we generally handle this by setting up an accrual asset and offsetting liability so that we capitalize in accordance with order placed. These are rare though and not the typical process.

 

[ama@accountant forums]

capitalised according to IAS16. unless you are using cash basis as you are working in an NGO in this case you should expenses off when you pay the cash

 

[ama@accountant forums]

which country and company?

 

[Samir]

Capitalization vs expense is regulated by a lot more than company policy. I'd look into what the government and reporting requirements dictate.

Generally, I like to expense whatever I can.