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Capitalizing vs. Expensing
Terms in this set (15)
Expected to provide future economic benefit over multiple accounting periods. Recorded as asset at cost (fair value at acquisition) plus costs necessary to prepare for use. Depreiciated or amortized over expected useful life.
Higher assets, higher equity, higher CFO.
Future economic benefit is unlikely or highly uncertain.
Interest during construction of an asset. Depreciated (for use asset) or COGS (for sale asset). Recalculate interest coverage ratio treating interest as expense not capitalized
Research and development
US GAAP - expensed as incurred
IFRS - research expenses and development capitalized
Capitalized - Total assets
Capitalized - Shareholders' equity
Capitalized - Income variability
Capitalized - Net income (first year)
Capitalized - Net Income (subsequent years)
Capitalized - Cash flow from operations
Capitalized - Cash flow from investing
Capitalized - Debt ratio
Capitalized - Debt-to-equity ratio
Capitalized - Interest coverage (first year)
Capitalized - Interest coverage (subsequent years)
Lower (higher depreciation reduces EBIT)
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