Repair and acquisition costs are two high-stakes decisions in the
professional field. Understanding repair and acquisition costs will be helpful
in managing day-to-day accounting activities. As you review this week's
material, consider how the guidelines associated with repair and acquisition
costs impact stakeholders from management to shareholders.
Companies are often presented with the decision to capitalize or expense.
Capitalizing allows companies to spread out the cost of acquiring new
assets over a longer period of time (over one year). This is an income
management issue. If it is a good year, companies typically want expense
assets; if it is a bad year, they want to capitalize. When companies want to
manipulate numbers to reflect a positive outcome, this can be considered an
ethical issue as well. There may be times when the IRS will be concerned
with the tax code as it relates to expense and capitalization. Understanding
the guidelines will help you, as the accountant, communicate options and
help the company make the best, most ethical decision.
Understanding acquisition costs is important, because when a company
considers expanding, one of the first considerations will be the acquisition
costs. The company will want to know how much capital is required to
prepare this new asset to function. In addition to this number as a whole, it
is also important to consider where the cost belongs and what the right
approach for the company is.
References
Whalen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate accounting: Reporting
and analysis. Boston, MA: Cengage Learning.
