USA Capitilizing Utilities?

[MissBalanceSheet]

When we set-up a new store (retail chain) our CPA firm has said we can capitalize the utilities (water, electricity, etc.). I'm looking for more detailed information on this. I don't have access to FASB codification.

Does anyone know where I can find the details for this or know if we can capitalize these things? I thought they were expenses.

 

[bklynboy]

Not true. Never heard of this as you pay for utlities as you use them hence no capitalizing. He may mean they could be prepaid where you pay for several months in advance. If he insists this is correct get another CPA.

 

[MissBalanceSheet]

That's what I thought.

Even if they are part of a project they cannot be capitalized is my understanding.

 

[Steve-LevelUp]

Could they perhaps mean that if the shop took 6 months to get setup, then all costs associated with getting the "asset ready for use" could qualify, which could include utilities. This might be a stretch in my thinking, but this might be what he is referring to? What do you think bklynboy? Fidget?

 

[bklynboy]

I wouldnt capitalize utilities as its a period expense even if they were building a new facility - it has no future value so nothing to depreciate. To me as you use them you expense them. Costs to get an asset ready are more about teh actually development/building of the item and not the incidental costs you use up during that period. Not sure there is specific guidance (I have not looked) but that would be my take and what we do at firms I have worked at.

 

[geezer]

Or is this a situation where they are having to have the utilities installed? For example, in some rural areas, if they've purchased raw land, there may not be any type of septic, water or electric on the land yet. In some places having a well dug can cost as much as $15K, and the same with septic. The original post mentioned a retail chain, so they may not be talking about anything as rural as I'm thinking unless it is something on the outskirts of town where the city utilities are not available. If the cpa mentioned capitalizing utilities, I would think he/she was not talking about the monthly utilities bills. He was probably talking about the initial investment of having utilities provided from scratch-more in line with the UNICAP rules.

 

[bklynboy]

Agree if its installation since that is a capitalized item. Not the monthly usage however.

 

[Drmdcpa]

I saw a CPA firm capitalize operating costs once. This firm advertises a specialization in real estate. Real boneheads if you ask me.

Their reasoning was that the property was temporarily vacant. It was available for rent and the owners were actually in negotiation with a prospective new tenant.

No justification whatsoever to capitalize operating costs hidden in an asset called "carrying costs."

 

[Fidget]

Could they perhaps mean that if the shop took 6 months to get setup, then all costs associated with getting the "asset ready for use" could qualify, which could include utilities. This might be a stretch in my thinking, but this might be what he is referring to? What do you think bklynboy? Fidget?

I wouldnt capitalize utilities as its a period expense even if they were building a new facility - it has no future value so nothing to depreciate. To me as you use them you expense them. Costs to get an asset ready are more about teh actually development/building of the item and not the incidental costs you use up during that period. Not sure there is specific guidance (I have not looked) but that would be my take and what we do at firms I have worked at.

apologies for the late reply, but under IFRS, you can capitalise utilities used involved in construction projects or bringing an asset to a ready to use state.

But here's the rub... you'd have to have a good methology for differentiating how much of the overall bill was directly related to it - unless a separate connection specifically for that purpose was being used. So it gives the option on one hand and snatches it away in the other. It's a bit like R&D - if you can't explicitly identify one from the other, then you treat it as research and write it off as an expense.

Unless it's expressly forbidden somewhere in US GAAP, I think it'll probably be along the same lines.