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      |
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Option 1a: Accrued Operating Tax with Pre-tax Capitalization |
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Keep in mind that all three cost profiles discussed (i.e., expense,
capitalize pre-tax, and capitalize after-tax) yield equivalent costs on
a present value basis, i.e., $10,000. In that sense, they are each a
viable alternative treatment. We decide to capitalize certain types of
expenses because their returns are spread out over time and we get
better matching of sales and charges.
It may be that the projects your business routinely undertakes are not expected to provide any return until after the first year. In this case, a pre-tax capitalization might better match sales and costs. Just be careful that if you decide to capitalize and amortize an expense pre-tax, that spending will need to be strictly controlled to avoid waste. |
© 2015 by Hodak Value Advisors, LLC
